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.
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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?
- First, determine the registered profit.
Measure the registered profit.
- Next, determine the years of investment.
Determine the total years of the investment.
- Next, determine the initial investment.
Calculate the value of the initial investment.
- Next, determine the working capital.
Calculate the total working capital of the business.
- Next, determine the scrap value.
Calculate the scrap value of the assets in the business.
- Finally, calculate the accounting rate of return.
Using the formula above, calculate the ARR.
FAQ
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.
