9d • General discussion
Business Concept of the Day: Equity Multiple
If you are going to invest money, you have to have the right vocabulary:
Equity Multiple is a term every savvy investor has.
Because it doesn’t actually tell you how much money you’ll make.
The smartest investors I know focus on a simpler question first:
“What’s the equity multiple?”
Because it answers the most important question in investing:
How many times will I get my money back?
The Equity Multiple tells you the total cash returned to investors relative to what they invested.
The formula is simple:
Total Cash Distributed ÷ Initial Investment
Example:
If you invest $100,000 in a deal and receive $200,000 over the life of the investment…
Your equity multiple is 2.0x
Meaning:
You doubled your money.
Unlike IRR, equity multiple doesn’t care about time.
It only answers one question:
How much money did the investment actually produce?
That’s why experienced investors often look at both metrics together:
• IRR tells you how fast your money grew
• Equity Multiple tells you how much your money grew
Because a deal with a high IRR but low equity multiple may look great on paper…
But might not create much real wealth.
When evaluating investments, it’s always worth asking:
Are you optimizing for speed… or magnitude?
1
0 comments
Business Concept of the Day: Equity Multiple
skool.com/giveemthebusiness
Millions of people with great business ideas do nothing with them. Not because they can't. Because nobody showed them how. THAT CHANGES NOW!
Leaderboard (30-day)
1
+1
2
+1
Powered by