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{{About|a capital budgeting concept|other uses|ARR (disambiguation){{!}}ARR}} | |||
{{accounting}} | |||
'''Accounting rate of return''', also known as the '''Average rate of return''', or '''ARR''' is a financial ratio used in [[capital budgeting]]. <ref>[http://www.answers.com/topic/accounting-rate-of-return-arr Accounting Rate of Return - ARR]</ref> The ratio does not take into account the concept of [[time value of money]]. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out of each dollar invested (yearly). If the ARR is equal to or greater than the required rate of return, the project is acceptable. If it is less than the desired rate, it should be rejected. When comparing investments, the higher the ARR, the more attractive the investment.<ref>[http://www.unf.edu/~dtanner/dtch/dt_ch19.htm Chapter 19 Accounting Rate of Return]</ref> Over one-half of large firms calculate ARR when appraising projects. <ref>Arnold, G. (2007). Essentials of corporate financial management. London: Pearson Education, Ltd.</ref> | |||
==Basic formulae== | |||
*<math>\text{ARR} = \frac{\text{Average return during period }}{\text{Average investment}}</math> | |||
where | |||
*<math>\text{Average investment} = \frac{\text{Book value at beginning of year 1 + Book value at end of useful life}}{\text{2}}</math>=Profit/investment equals to ARR. | |||
ARR = Incremental Revenue - Incremental Expenses (Including Depreciation)/Initial Investment | |||
Average Profit = Profit After Tax/Life of Project | |||
==References== | |||
{{Reflist}} | |||
[[Category:Financial ratios]] | |||
{{Accounting-stub}} | |||
Revision as of 20:05, 25 January 2014
29 yr old Orthopaedic Surgeon Grippo from Saint-Paul, spends time with interests including model railways, top property developers in singapore developers in singapore and dolls. Finished a cruise ship experience that included passing by Runic Stones and Church. Template:Accounting Accounting rate of return, also known as the Average rate of return, or ARR is a financial ratio used in capital budgeting. [1] The ratio does not take into account the concept of time value of money. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out of each dollar invested (yearly). If the ARR is equal to or greater than the required rate of return, the project is acceptable. If it is less than the desired rate, it should be rejected. When comparing investments, the higher the ARR, the more attractive the investment.[2] Over one-half of large firms calculate ARR when appraising projects. [3]
Basic formulae
where
- =Profit/investment equals to ARR.
ARR = Incremental Revenue - Incremental Expenses (Including Depreciation)/Initial Investment
Average Profit = Profit After Tax/Life of Project
References
43 year old Petroleum Engineer Harry from Deep River, usually spends time with hobbies and interests like renting movies, property developers in singapore new condominium and vehicle racing. Constantly enjoys going to destinations like Camino Real de Tierra Adentro. 31 yr old Nurse Manager Odis Carmouche from Lloydminster, has several passions including garage saleing, property developers in new Launch ec singapore and greeting card collecting. that covered traveling to Macquarie Island.
- ↑ Accounting Rate of Return - ARR
- ↑ Chapter 19 Accounting Rate of Return
- ↑ Arnold, G. (2007). Essentials of corporate financial management. London: Pearson Education, Ltd.