Here is an example from Tanya Muro’s book The Operator Question.

A deal paid investors back $1.80 for every $1 invested, over eight years.

You can describe that result two ways:

“Investors almost doubled their money.”
“Investors earned about 7.6% a year.”

Both are true. The first sounds big. The second sounds modest. It’s the same deal.

Why the two numbers differ

The first number only measures how much came back. In the industry it is called the equity multiple: 1.8x here.

The second measures how fast it came back. Spread a 1.8x result over eight years and it works out to roughly 7.6% a year, compounded.

The companies selling these deals choose which number goes on the slide. That choice is part of the pitch.

Ask for both

When you see a big return on a slide, ask two questions:

How much came back for each dollar invested?
How long was the money tied up?

You need both answers, because each number can flatter a deal on its own:

A quick deal can show a high yearly number with only a small profit.
A slow deal can double your money with a low yearly number.

Neither is wrong. But a single number, chosen by the seller, isn’t the whole picture. The same goes for fees, as Tanya shows in the 12% fee that was really about 22%.

Which number do you look at first?

This post is based on a one-minute video on Tanya Muro’s YouTube channel. For education only, not financial advice.