INVESTMENT ANALYSIS GUIDE
IRR vs Equity Multiple
IRR measures time-adjusted return, while equity multiple measures total cash returned relative to capital invested.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Equity multiple equals total distributions divided by total contributions. IRR additionally reflects when those contributions and distributions occur.
Calculation framework
The same 2.0x multiple produces a higher IRR over three years than over ten years. Early distributions can also increase IRR without changing the multiple.
Underwriting review
Check that both metrics use the same equity cash flows and include all capital calls, returned capital and net exit proceeds.
How to use the result
Use both with profit, duration, peak equity and downside risk. Neither metric alone shows probability of loss or liquidity.