What is the main difference between MOIC and IRR?

The primary reason that the statement identifying the main difference between MOIC and IRR as indicating that MOIC shows total return while IRR reflects an annualized return is accurate lies in the definitions and calculations of these two metrics.

MOIC, or Multiple on Invested Capital, quantifies the total return on an investment by measuring how many times the initial investment is multiplied. It is calculated by taking the total distributions received from an investment and dividing it by the capital invested, giving investors a straightforward picture of the total profit generated over the life of the investment, without considering the time value of money.

In contrast, IRR, or Internal Rate of Return, is a rate of return that provides an annualized percentage return of an investment, taking into account the timing of cash flows throughout the investment period. It effectively illustrates how profitable an investment is by annualizing the return, allowing for the comparison of investments of different lengths and cash flow patterns.

Together, these metrics serve different purposes: MOIC gives a clear, cumulative financial outcome of an investment, while IRR provides insight into the investment's efficiency per annum. This distinction is crucial for investors making decisions based on the total rewards from their investments versus the performance normalized over time.