Why is it important to consider both IRR and MoM when measuring investment returns?

Considering both Internal Rate of Return (IRR) and Multiple of Money (MoM) when measuring investment returns is crucial because they provide different perspectives on the returns generated from an investment.

IRR is vital as it accounts for the time value of money, which means it recognizes that money received at different times is not valued the same. This is important in investment analysis because it allows investors to understand how their investments are expected to perform over time, specifically how much value they earn relative to their investment period. A higher IRR indicates a potentially more lucrative investment when comparing cash flows over the life of the investment.

MoM, on the other hand, measures the total inflows from an investment relative to the total capital invested. It provides a straightforward ratio that indicates how many times the original investment has been returned, offering a simple snapshot of overall profitability without factoring in the timing of those cash flows.

Together, these two metrics enable a comprehensive analysis of an investment's performance, as IRR focuses on growth efficiency and time, while MoM gives a clear picture of overall return. This dual considerations help investors make informed decisions about the attractiveness and relative performance of various investment opportunities.