On this page are a Realized MOIC calculator and an Unrealized MOIC calculator, which breakdown the Multiple On Invested Capital. Enter either the fund book value and the invested capital, or the fund's cumulative distributions and invested capital to see the breakdown.
Before you can use the breakdown of MOIC calculators, you'll have to gather a couple of inputs. First, for either tool, you'll need to find:
Then, depending on which tool you're using, find:
MOIC is the gross multiple on invested capital for a fund or investment. (See our MOIC calculator here). It breaks into two parts:
Both also require the funds Invested Capital measure. Invested capital only includes deployed funds (and any costs to invest), not funds that have been called but not yet invested. From that perspective, all MOIC measurements are best to judge the GP or sponsor's prowess; TVPI and its constituents better show a fund's performance for the LP base.
Other private investment and general calculators:
On this page is a RVPI calculator, or Residual Value to Paid-In Capital calculator. Enter the fund's residual value estimate (net of any expenses, fees, carry, promote, and so on) and the amount LPs have paid into the fund (called capital) to compute the RVPI multiple.
Before you can use the RVPI calculator, gather two inputs:
Assuming all investors started simultaneously under the same terms, the math will be equivalent whether you run the numbers for the whole fund or a single pro-rated investment.
RVPI is the Residual Value to Paid-In Capital multiple. It shows how much the fund has yet to pay out to Limited Partners versus how much those investors have paid into a fund.
RVPI is related to the TVPI multiple or Total Value to Paid-In Capital. TVPI also includes all distributions made to investors, further isolated in the DPI multiple, or Distributions to Paid-In Capital ratio.
RVPI is not time-aware, you might be looking at marks from a year-old fund, or seven years into the fund. To better compare to your other investments, use the fund's net IRR.
RVPI is an excellent multiple to use when guessing how much more an investment might pay out to LPs. However, residual value isn't a guarantee; more expenses or fees can change the RV, and all sorts of other things can change the value of the remaining investment in a fund... such as if the value of some of the investment declines.
Other private investment and general calculators:
On this page is a DPI calculator, or Distributions to Paid-In Capital calculator (or realization multiple). Enter the amount the fund has paid out to LPs, and the amount LPs have paid into the fund – the amount of capital called – to compute the DPI multiple.
Before you can use the DPI calculator, you'll need to find two inputs:
You can either run the math for all investors in the fund (assuming they started at the same time) or use numbers for a single investor – be sure to use the total or the pro-rated amounts, respectively.
DPI is the Distributions to Paid-In Capital multiple. It shows how much the fund has paid out versus how much investors have paid into a fund. It's also known as the realization multiple, since it measures the money investors have so far realized from their investment.
It's closely related to the TVPI multiple or Total Value to Paid-In Capital. TVPI adds an estimate of the fund's residual value, essentially all investments yet to pay out to investors net of any estimated costs and fees (such as carried interest or promote).
DPI is not a time-aware multiple. For that, use IRR of the fund. DPI naturally is lower in the earlier stages of an investment but (hopefully) increases and crosses 1x later in the fund's life due to liquidity events.
DPI is superior to most multiples in a significant way – once money is paid out, LPs can use it in other investments or for expenses! The success of a fund hinges on how well it can convert the marked investment value from other ratios into actual distributions. DPI shows how well a fund has returned capital up to a point.
Other private investment and general calculators:
On this page is a TVPI calculator, or Total Value to Paid-In Capital calculator. Enter the amount the fund has called, its cumulative distributions to this point, and the fund's residual value – either from the perspective of one investor, or everyone in the fund.
Before you can use the TVPI calculator, grab a few inputs to put in the tool:
Assuming all LPs started at the same time, the math will work for all investors in the fund or just a single investor. Make sure you either use total numbers or pro-rated numbers for one LP, depending on which numbers you choose to input.
TVPI is the Total Value to Paid-In Capital multiple. It's usually a net measure that uses the residual value of any investments still in the fund plus the cumulative distributions in the numerator over the paid-in capital from investors in the denominator.
Sometimes funds will report TVPI using a gross value or book value. Make sure you know whether the TVPI your fund is reporting is net or gross – fees, expenses, carry, promote, and other charges to LPs can have a significant effect on the multiple you'll realize. Also, note that it isn't a time-aware multiple; IRR would let you better compare an investment to alternatives.
TVPI, at least the net variety, is a great multiple to look at when judging the current performance of an investment. It is, however, not a guarantee – Residual Value is, at best, an estimate of what the fund will eventually distribute to the LPs and is merely a mark.
DPI, or the Distributions to Paid-in Capital multiple, is where you ultimately want the residual value to end up. As they say – the return isn't real until you have the money back in your bank account.
Other private investment and general calculators:
On this page is a MOIC calculator, or Gross Multiple On Invested Capital calculator. Enter the amount a fund has returned and the current book value (before fees, carry, promote, or other costs), and the invested capital to calculate the multiple on invested capital.
Before you can use the MOIC calculator, you'll have to gather a few inputs.
MOIC is the gross multiple on invested capital for a fund or investment. As it doesn't yet include any of the fund's costs to the end investors or limited partners – fees, expense, carry, promote, and so on – it's best used as a measure of the manager's, sponsor's, or general partner's investment performance (or skill, if you'll allow it).
MOIC in isolation isn't the best measure of an investment's performance since it ignores time or duration. A 2x MOIC in one year is – of course – more attractive than a 2x MOIC over the 10-year lifespan of a fund. You'll need to combine MOIC with other measures, such as the internal rate of return, to evaluate an investment's performance.
Additionally, you can break down MOIC into an unrealized MOIC and realized MOIC. The breakdown lets you separate historical payouts from future payouts.
MOIC is an excellent measure for determining your GP's prowess when investing in a private fund – but isn't the best gauge of your (or a generic LP's) performance in a fund. Some alternatives are:
You'll also (of course) want to look at IRR or internal rate of return to compare to your other investments. Multiples are a good bragging point, but IRR lets you compare to theoretical alternatives.
Other private investment and general calculators:
Below is a Return on Capital Employed or ROCE calculator. Enter a business's Earnings Before Interest and Taxes (EBIT) and Capital Employed, and the tool will calculate its ROCE.
Return on Capital Employed, or ROCE, is an efficiency ratio that helps you determine a company's performance based on the amount of capital they employ to run the business.
It starts with the company's earnings before it has to service any debt or pay taxes. Then, you divide by Capital Employed, the company's total assets net of any current liabilities.
The formula for Return on Capital Employed (ROCE) is:
Return\ on\ Capital\ Employed=\frac{EBIT}{Capital\ Employed}Where:
Return on Capital Employed is a similar measure to Return on Invested Capital, but ignores any long term debt to focus on the immediate operating needs of the business. However, unlike Return on Equity, it considers debt coming due in the next year.
Especially in trying times, ROCE is a great way to screen through industries which are historically heavy-debt users, like industrials and utilities. You can quickly see which companies are the best allocators before the effects of interest on earnings and longer-term debt on the balance sheet. It's also – like ROIC – a useful way to compare a company to itself in the past. As a bonus, it's easier to compute than the controversial Invested Capital.
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Below is a Cash Return on Invested Capital or CROIC calculator. Enter a business's Free Cash Flow (or rarely, EBITDA) and Invested Capital, and the tool will calculate its CROIC.
CROIC is a capital efficiency ratio that measures how well a company employs its Invested Capital by figuring out how much cash it throws off. Canonically, it's the percentage return of Free Cash Flow divided by Invested Capital.
CROCI, or Cash Return on Capital Invested, is a similar ratio based on a measure similar to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) instead of Free Cash Flow with various adjustments for economic factors. It was invented by Deutsche Bank and is now housed with Deutsche Asset & Wealth Management (DWM).
Cash Return on Invested Capital Formula
The formula for Cash Return on Invested Capital (CROIC) is
Where:
Both Free Cash Flow and Invested Capital aren't numbers you can pull from company statements. So let's take a look at both.
Free Cash Flow reflects the actual cash flow generated by the business over the reporting period. Unlike the accounting fictions depreciation, free cash flow measures how much money is going out the door or staying in house by expensing things in the current period 'at cost'.
Free Cash Flow is controversial in that there are many arguments about the "correct" number. Here's one take on free cash flow to the firm:
EBIT=Earnings\ before\ Interest\ and\ Taxes\\
Change\ in\ Working\ Capital=Working\ Capital_{t}-Working\ Capital_{t-1}\\~\\
Free\ Cash\ Flow\ (to\ Firm)=EBIT*(1-tax\ rate) + Depreciation + Amortization \\
- Change\ in\ Working\ Capital - Capital\ ExpendituresFeel free to substitute your own, though!
As we discussed in the Return on Invested Capital calculator, there are a few ways to calculate Invested Capital. I like to combine shareholder equity and total debt and net out cash (and near-cash) on the balance sheet:
total\ debt=short\ term\ debt +long\ term\ debt\\~\\ non-operating\ assets=cash+cash\ equivalents+investments+\\inactive\ assets\\~\\ invested\ capital=total\ debt+shareholder's\ equity -\\non-operating\ assets
However, some investors and analysts take a different approach. They may, for example, make no adjustment for cash under the argument "everything on the balance sheet needs to be productive." Fair enough – you should use the formulation most comfortable to you.
As with many measures, when you do a CROIC calculation, take the Invested Capital average between the beginning and ending period in question. As earnings are by definition changing the balance sheet (either as retained earnings, or perhaps paid out in dividends or used to repurchase shares), some adjustment for changing conditions is necessary.
Although both Free Cash Flow and Invested Capital are mildly controversial with no "true, agreed" calculation, they both get at an important concept: you can't "fake" either calculation (without committing fraud!)
While a company can play to the numbers for other measures like ROIC, it's hard to fake cash generation. In that way, CROIC and its closely related cousins like CROCI are superior to a naive ROIC calculation.
Other resources:
Below is a Return on Invested Capital or ROIC calculator. Enter a business's net operating profit after taxes and its invested capital, and the tool will calculate its ROIC.
Return on invested capital is an efficiency measure that suggests how well a company is performing based upon both debt and equity on its balance sheet. It's calculated by dividing the NOPAT of a company – Net Operating Profit After Taxes – by the Invested Capital in the business.
In essence, ROIC tells us if a dollar invested in the company is creating more than a dollar in value.
The return on invested capital formula is:
Return\ On\ Invested\ Capital\ (ROIC)=\frac{NOPAT}{Invested\ Capital}ROIC = NOPAT / invested capital
Where:
Let's talk about each – you can't simply lift each term off the company's income statement and balance sheet, so you'll need to do some further math.
NOPAT is a quick take on a company's earnings available to invest after all taxes are paid, but including interest a company has to pay for debt service. Most analysts start with EBIT, or Earnings Before Interest and Taxes, then adjust for the tax rate:
Earnings\ Before\ Interest\ and\ Taxes\ (EBIT) *(tax\ rate)
For a deeper dive, you might use a different starting point before removing taxes. Some start with EBITA, Earnings Before Interest, Taxes, and Amortization (intangible assets). It is a more appropriate adjustment than EBITDA, which further removes the Depreciation of physical assets. But, as Warren Buffett once said, the tooth fairy doesn't pay for capital expenditures – those costs are probably going to come up again.
Since the balance sheet has two balanced sides, there are a few ways to calculate invested capital.
One quick way is to take the total debt and equity in the business off the balance sheet, then net out non-operating assets. Generally, these are cash, cash equivalents, investments, non-operating equipment, and (sometimes) assets of now-defunct divisions which are inactive in the future:
total\ debt=short\ term\ debt +long\ term\ debt\\~\\ non-operating\ assets=cash+cash\ equivalents+investments+\\inactive\ assets\\~\\ invested\ capital=total\ debt+shareholder's\ equity -\\non-operating\ assets
There are a few other ways, and analysts do differ around the margins. Others won't make any adjustment for cash and equivalents: "if it's there, the company should use it!". Just know that opinions differ; adjust the above formula as you see fit. When you look at various screening sites, you'll see they have different methodologies for computing ROIC – how fun!
However you calculate invested capital, you should look at the average invested capital. The most straightforward way is to take the average of the invested capital at the start and end of the period.
When you compute ROIC, you end up with a percentage that maps to the rough amount of cash a company generates from all of its investments – debt, equity, and perhaps preferred shares.
You can compare that number to what's known as WACC, or Weighted Average Cost of Capital. The WACC lets you estimate how much it costs a company to raise new money between debt and equity. If the ROIC is larger than the Weighted Average Cost of Capital, it creates value with all its investments. If it's not? Sorry, the business is a net value-destroyer.
Usually, though, it's a decent cut to screen for higher ROIC. A stock investor may care more about the return on the equity component; ROIC conveniently lets us look at the whole stack, debt and equity, to see how a company is performing. It also isn't sensitive to share buybacks – return on equity can be distorted by treasury stock, which is repurchased (and unretired) shares held on the balance sheet.
ROIC tells you how efficient a company is, but it doesn't necessarily map to long-term value creation. If management concentrates solely on an ROIC hurdle, they may underinvest in net value-adding capital expenditures, which wouldn't clear the hurdle rate.
Consider a company with an 18% ROIC that doesn't want the ratio to fall. Instead of reinvesting earnings, they may return capital to shareholders as dividends – and then it's on the shareholders to find another investment that can give them as large a return on their money.
(An 18% ROIC is excellent. However, that company probably is fairly valued or even overvalued, meaning dividend reinvestment may not be the best path.)
And, of course, ROICs differ by industry. Since industries tend to structure their preferred share, debt, and common equity differently, ROICs will look different when you don't pick your comparables wisely.
ROIC is an excellent measure, probably superior to return on assets and return on equity, to see the true efficiency of the business. It is, however, divorced from your returns if you are solely a debt or equity investor if a company employs both.
But, as you can see, it does still have some distortions. Michael Mauboussin and Dan Callahan of Credit Suisse have an excellent overview of potentially better adjustments to return on invested capital in their whitepaper, Calculating Return on Invested Capital.
Other resources:
Below is a Return on Assets or ROA calculator. Enter a business's net income and total assets, and the tool will calculate its ROA.
Return on Assets, or ROA, is the ratio of a company's net profit or net income to its total assets. It's a valuable measure of financial performance, although only when comparing companies in the same industry. Nevertheless, it effectively lets you compare how well management performs relative to the assets on the company's books.
The formula for Return on Assets (ROA) is
Return\ On\ Assets\ (ROA)=\frac{Net\ Income}{Total\ Assets}Where:
Generally, you want to use average assets, taking the average between assets at the start of the period and the end. That's because the balance sheet will change as the period continues, and the balance sheet will look different at the beginning and end of the period.
ROA is a good measure for comparing a company versus itself in the past or versus peer companies, but not great for comparing across industries. This is because industries employ assets in different ways – while banks have an accounting system dedicated to marking assets correctly, they won't compare to asset-light industries like tech. Likewise, manufacturing tends to have many assets tied up in plants and equipment, and ROA is a more helpful measure there.
A more useful comparison for company efficiency is the return on invested capital or (maybe, in some cases) return on equity.
ROA is most useful in certain industries where ROA is a good benchmark across peer companies. Banks are the canonical example – looking at ROA is a great check on a bank's performance. For most of the investable universe, though, it's best to look at another measure – especially as companies become more and more asset-light.
Other resources:
On this page is a Return on Equity or ROE calculator. Enter a company's net income and shareholders' equity, and the tool will return the realized ROE.
Return on Equity – commonly known by its shorthand ROE – is the ratio of a business's net profit or income to shareholders' equity. As a measure of financial performance, it lets you see how well management's investments are performing relative to what they owe shareholders.
In short: the higher the ROE, the better, although a stable Return on Equity over roughly 10% is a great sign (where 10% is the rough average return on stock over time). As you'd expect, an increasing ROE is superior, but a slowly declining ROE in a more mature company is acceptable as long as it comes with stability.
Over a long enough period, a company's returns are constrained by its returns on equity (or possibly a closely related measure), not multiple expansion, or what investors are willing to pay per dollar of cash flow. Also, note the importance of stability; companies with stable and predictable returns on equity are bound to be less volatile.
The formula for Return on Equity (ROE) is
Return\ On\ Equity\ (ROE)=\frac{Net\ Income}{Shareholders'\ Equity}Where:
Where available, you really want to use average shareholder's equity, since the very process of earning increases equity. For example, to calculate an annual return on equity, average the shareholder's equity at the beginning of the year and reported at the end.
ROE is an excellent measure, but it can be deceiving if you also don't check a company's leverage. Consider that while a company's debt increases, shareholder's equity will decrease – but as it's on the bottom of the equation, ROE will appear larger.
Additionally, there are two other ways shareholder's equity decreases – losses and (often) stock buybacks.
Negative earnings will reduce a company's retained earnings, so if the company then turns it around you might have a few quarters of spectacular numbers – in those cases, turn to something like Return on Invested Capital, instead.
Ditto for share buybacks. A company usually will hold repurchased shares in treasury stock – which is an asset to the company, but a debit from our side, as investors. Why's that? The company can resell those shares at any time – unless it chooses to retire the shares, which means they'll be wiped off the books.
A third, definitionally strange positive return on equity comes when a company loses money (negative earnings) and has negative shareholders' equity due to negative retained earnings or an entry in treasury stock. This strange situation means – you guessed it – unprofitable companies will sometimes have a positive ROE.
In short, always check the tape, don't blindly trust a screen!
Paradoxically, you'll find two types of companies with negative returns on equity due to technically having negative shareholders' equity:
Like (famously) Autozone, the first types of companies are great at returning capital to shareholders by buying back stock. The second type might be turnaround plays or growth companies finally hitting profitability. Either way, check closely.
And, as mentioned above, two negatives make a positive – so watch out for losses from companies that have negative shareholders' equity and a positive ROE!
The bottom line is that Return on Equity is a great quick check on a company's temperature, but has some flaws and gotchas that require you to look a bit deeper. A company's capitalization makes a huge difference to ROE, so make sure you know going in if a company you're looking at is more leveraged than its peers. And – heed my warning – always check the Return on Invested Capital and Return on Assets as well.
Other resources: