Full Definition
Cash-on-Cash return (CoC), also called Multiple on Invested Capital (MOIC) or Money-on-Money Multiple (MoM), measures the total gross return on a PE investment as a multiple of the capital invested: if a PE fund invests $100M in a company and ultimately receives $350M in proceeds from that investment, the cash-on-cash return is 3.5x. Unlike IRR (Internal Rate of Return), which measures return relative to time and the timing of cash flows, cash-on-cash is a simple absolute multiple—it measures how much total cash was returned relative to total cash invested, without reference to when that return was achieved. A 3.5x return achieved in 3 years is dramatically better on an IRR basis than the same 3.5x return achieved in 10 years, but both show the same cash-on-cash multiple. Cash-on-cash and IRR are complementary measures for evaluating PE investments—each captures what the other misses. IRR is more sophisticated (accounting for time value of money and cash flow timing), but can be manipulated: using subscription lines of credit to delay capital calls inflates IRR by making the holding period appear shorter without changing the actual cash returned. Cash-on-cash multiple is harder to manipulate and more intuitively meaningful to investors: a 3x fund means investors tripled their money, a statement that resonates clearly regardless of timing. Both metrics should be reviewed together to assess true fund performance. PE fund marketing materials typically lead with either cash-on-cash or IRR depending on which presents their track record more favorably: funds with excellent returns achieved over long holding periods emphasize cash-on-cash; funds with exceptional returns achieved quickly emphasize IRR. Sophisticated LP investors evaluate both metrics and seek to understand what drove the returns—was the 3x return driven by fundamental operational improvement (durable competitive advantage), market multiple expansion (market timing), or financial leverage (leverage effect)? Returns attributable to fundamental value creation are the most compelling evidence of PE skill.
FAQs
What cash-on-cash return do PE investors target?
Top-quartile PE funds target 3x+ MOIC on their successful investments, with a fund-level return target of 2-2.5x net MOIC (after management fees and carried interest) on the overall fund portfolio. Fund returns are lower than individual deal returns because the portfolio inevitably includes some investments that return less than cost or are written off entirely. A fund that achieves 2x+ net MOIC is considered to have met its return threshold ('over the hurdle'); 2.5x+ is considered strong performance; 3x+ is elite. Funds below 1.5x net MOIC fail to adequately compensate LPs for illiquidity risk compared to public market alternatives.
How does dividend recapitalization affect cash-on-cash calculation?
Dividend recapitalizations count as cash returned in the cash-on-cash calculation—any cash distributed to PE fund investors from a portfolio company (whether from operating distributions, dividend recaps, or sale proceeds) contributes to the total cash returned. A PE fund that invests $100M in a company, receives a $40M dividend recap, and subsequently exits for $260M has received $300M total cash—a 3x cash-on-cash return. The dividend recap returned 40% of invested capital before exit, which also improves IRR because the $40M was received earlier than the exit proceeds.
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