Equity Multiple
Also called: EM, MOIC, Multiple on invested capital
The equity multiple is total cash distributed to investors divided by total equity invested, expressed as a multiple, and it measures how many times an investor gets their money back over the full hold.
Equity multiple answers the question IRR cannot: how much money did this actually make. A 2.0x multiple means an investor received two dollars for every dollar contributed, one of which is the original capital and one of which is profit.
Because it ignores timing entirely, the equity multiple is the natural counterweight to IRR. A deal can post a high IRR on a fast flip and still return very little absolute profit. Pairing the two is standard practice in any credible investment committee memo.
How to calculate equity multiple
Equity Multiple = Total Distributions / Total Equity Invested- Total Distributions:
- All operating distributions plus net sale proceeds, before promote if measured at the deal level
- Total Equity Invested:
- Initial equity plus any capital calls
Worked example
Using the IRR example above:
- Equity invested
- $2,000,000
- Operating distributions, years 1 to 5
- $480,000
- Net sale proceeds
- $2,950,000
Rules of thumb
- A five year value-add multifamily deal is commonly targeted at 1.7x to 2.0x. Below 1.5x the illiquidity is usually not being paid for.
- Subtract 1.0x to read the profit multiple. A 1.8x deal returns 0.8x in profit.
Calculate equity multiple
Related terms
- Internal Rate of Return (IRR)
The internal rate of return is the annualized discount rate at which the present value of a deal's cash flows equals zero, making it the time-weighted compound annual return on invested equity.
- Cash-on-Cash Return
Cash-on-cash return is the annual pre-tax cash flow after debt service divided by the total equity invested, measuring the yearly cash yield an investor actually receives on their money.
- Preferred Return
A preferred return is a threshold rate of return that limited partners must receive on their invested capital before the general partner participates in profits above their pro rata share.