Financial Terms / accounting rate of return

# Unlock Profitability with Accounting Rate of Return

The accounting rate of return is a useful metric for quickly and accurately comparing multiple investment projects and determining their expected rate of return.

## Formula

``ARR = (Average Net Income / Average Investment) x 100``

## How do I calculate the accounting rate of return?

`The Accounting Rate of Return (ARR) is a useful metric for capital budgeting that can help you compare multiple projects and determine the expected rate of return for each project. To calculate the ARR, you need to divide the average net income of a project by the average investment for that project. The formula for this calculation is: `ARR = (Average Net Income / Average Investment) x 100`. You can use programs such as Sourcetable to help you with the calculations.`

## What is Accounting Rate of Return?

`The accounting rate of return (ARR) is a capital budgeting metric used to calculate an investment's profitability. It is used to compare multiple projects and determine the expected rate of return for each project.`

## What is the difference between ARR and the Required Rate of Return?

`The ARR measures the annual percentage return from an investment based on its initial outlay of cash, while the Required Rate of Return (RRR) is a company's minimum acceptable rate of return on an investment.`

## What is the formula for calculating ARR?

`The formula for calculating ARR is: `ARR = (Annual Profits / Initial Investment) x 100``

## Key Points

How do I calculate accounting rate of return?
`ARR = (Average Net Income / Average Investment) x 100`
ARR is the Average Net Income
ARR stands for Accounting Rate of Return and is the average net income an asset is expected to generate over its lifetime divided by its average capital cost.
ARR is Used in Capital Budgeting Decisions
ARR is used when companies are deciding whether to invest in an asset. The ARR is a way for companies to make decisions about whether to invest in an asset based on the future net earnings expected compared to the capital cost.
ARR is Used to Make Investment Decisions
The ARR is used when companies are deciding whether to invest in an asset. Companies use this metric to determine whether the future net earnings of an asset is worth the capital cost.