What is Accounting Rate of Return?
The ARR (Accounting Rate of Return), also known as the Average Rate of Return or the Return on Investment (ROI), is a financial metric used to evaluate the profitability of an investment or project.
The ARR is expressed as a percentage and represents the return earned on the investment on an annualized basis. It provides a simple measure for comparing the profitability of different investment opportunities or projects. However, it has some limitations, such as not considering the time value of money or the timing of cash flows, which may make it less suitable for evaluating projects with uneven cash flows over time.
How to Calculate Accounting Rate of Return?
Accounting Rate of Return calculator uses Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100 to calculate the Accounting Rate of Return, The Accounting Rate of Return formula is defined as a financial metric used to evaluate the profitability of an investment or project. It calculates the average annual profit or return generated by an investment relative to its initial cost. Accounting Rate of Return is denoted by ARR symbol.
How to calculate Accounting Rate of Return using this online calculator? To use this online calculator for Accounting Rate of Return, enter Average Annual Profit (AP) & Initial Investment (Initial Invt) and hit the calculate button. Here is how the Accounting Rate of Return calculation can be explained with given input values -> 34.8 = (700/2000)*100.