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Accounting Rate of Return Formula

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Accounting Rate of Return is a financial metric used to evaluate the profitability of an investment or project. Check FAQs

ARR = (\frac{AP}{Initial Invt}) \cdot 100

ARR - Accounting Rate of Return?AP - Average Annual Profit?Initial Invt - Initial Investment?

Accounting Rate of Return Example

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Here is how the Accounting Rate of Return equation looks like with Values.

Here is how the Accounting Rate of Return equation looks like with Units.

Here is how the Accounting Rate of Return equation looks like.

35 = (\frac{700}{2000}) \cdot 100

35 = (\frac{700}{2000}) \cdot 100

35 = (\frac{700}{2000}) \cdot 100

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Accounting Rate of Return Solution

Follow our step by step solution on how to calculate Accounting Rate of Return?

FIRST Step Consider the formula

ARR = (\frac{AP}{Initial Invt}) \cdot 100

Next Step Substitute values of Variables

∴

ARR = (\frac{700}{2000}) \cdot 100

Next Step Prepare to Evaluate

∴

ARR = (\frac{700}{2000}) \cdot 100

LAST Step Evaluate

∴

ARR = 35

Accounting Rate of Return Formula Elements

Variables

Accounting Rate of Return

Accounting Rate of Return is a financial metric used to evaluate the profitability of an investment or project.

Symbol: ARR

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Accounting Rate of Return

Average Annual Profit

Average Annual Profit refers to the average amount of profit earned by a business or project over a period of one year.

Symbol: AP

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Average Annual Profit

Initial Investment

The Initial Investment is the amount required to start a business or a project.

Symbol: Initial Invt

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Initial Investment

Other formulas in Capital Budgeting category

Go Payback Period

PBP = \frac{Initial Invt}{C f}

Go Cost of Retained Earnings

C RE = (\frac{D}{P c}) + g

Go Cost of Debt

R d = Int.E \cdot (1 - T r)

Go After-Tax Cost of Debt

ATCD = (R f + CS P) \cdot (1 - T r)

How to Evaluate Accounting Rate of Return?

Accounting Rate of Return evaluator uses Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100 to evaluate 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 evaluate Accounting Rate of Return using this online evaluator? To use this online evaluator for Accounting Rate of Return, enter Average Annual Profit (AP) & Initial Investment (Initial Invt) and hit the calculate button.

FAQs on Accounting Rate of Return

What is the formula to find Accounting Rate of Return?

The formula of Accounting Rate of Return is expressed as Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100. Here is an example- 35 = (700/2000)*100.

How to calculate Accounting Rate of Return?

With Average Annual Profit (AP) & Initial Investment (Initial Invt) we can find Accounting Rate of Return using the formula - Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100.

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Accounting Rate of Return Formula

Accounting Rate of Return Example

Accounting Rate of Return Solution

Accounting Rate of Return Formula Elements

Other formulas in Capital Budgeting category

How to Evaluate Accounting Rate of Return?

FAQs on Accounting Rate of Return

Variable Name