This term is a measure of the return of investment similar to the Internal Rate of Return (IRR).
For investments it is the increase in return over the period of an investment. For example, an investor may invest 100,000 in a company and look for an exit multiple of five in three years which means he is looking for 500,000 to be returned to him in three years time.
The following table gives a rough comparison between Internal Rate of Return and Exit Multiple.
| Exit multiple | |||
|---|---|---|---|
| 3 | 5 | 10 | |
| 3 years | 45% | 72% | 118% |
| 4 years | 32% | 50% | 78% |
| 5 years | 25% | 38% | 59% |
| 10 years | 12% | 18% | 26% |
To obtain an exit multiple of 3 over 5 years, your investment would have to grow at a compound rate of 25% for each of those five years.
The difference between the best bank deposit rate and internal rate of return is known as the risk premium.
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