Accounting Rate of Return Calculator

Author: Calculator Academy Team

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Enter the total profit registered, years of investment, initial investment, working capital, and scrap value into the calculator. The calculator will determine the accounting rate of return.

Accounting Rate of Return Formula

The following formula is used to calculate the accounting rate of return of an asset or business.

ARR = (RP / YOI) / [(IV + WC + SV)/2] *100

  • Where ARR is the accounting rate of return (%)
  • RP is the registered profit
  • YOI is the years of investment
  • IV is the initial investment
  • WC is the working capital
  • SV is the scrap value

Accounting Rate of Return Definition

An accounting rate of return is a measure of how profitable any given investment is. It’s more in depth than a typical ROI formula, as it takes into account working capital and scrap value. The higher the ARR the better the investment in 99% of cases.

Accounting Rate of Return Example

How to calculate accounting rate of return?

  1. First, determine the registered profit.

    Measure the registered profit.

  2. Next, determine the years of investment.

    Determine the total years of the investment.

  3. Next, determine the initial investment.

    Calculate the value of the initial investment.

  4. Next, determine the working capital.

    Calculate the total working capital of the business.

  5. Next, determine the scrap value.

    Calculate the scrap value of the assets in the business.

  6. Finally, calculate the accounting rate of return.

    Using the formula above, calculate the ARR.

FAQ

What is an accounting rate of return?

An accounting rate of return, or ARR for short, is a measure of how profitable a business is based on the investment in the business and the registered profit.

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