Maximum Multiple on Invested Capital (MOIC) is no longer achieved through structuring alone—it is built through EBITDA growth, cash flow conversion, and disciplined leverage. While the core equations of private equity remain unchanged, delivering target returns now requires greater precision in underwriting and execution. MOIC is driven by EBITDA growth, multiple expansion, and deleveraging, but only EBITDA and cash flow are controllable. With elevated entry multiples compressing the margin of safety and leverage often exceeding 5.0x Debt/EBITDA, consistent cash flow conversion is essential to support debt service and reduction. When growth underperforms and conversion weakens, deleveraging stalls, leaving many aging investments with eroding MOIC and increasing exposure to flawed underwriting assumptions.
The path forward is to reset investments using the same core ratios, grounded in current performance. Cash flow conversion becomes the starting point—when it falls below ~60–70%, deleveraging ceases to drive equity value, requiring immediate focus on working capital, pricing, and cost structure. Leverage must align with sustainable cash flow, and return expectations should be based on realistic exit multiples and achievable EBITDA growth. Fixing aged investments is fundamentally operational, not financial: improving EBITDA, margins, and conversion restores value creation. Leverage only works if the business works. Firms that succeed will rebuild value from within the portfolio, one ratio at a time—if the ratios improve, MOIC follows; if they don’t, time alone will not fix the investment.