Enter the average annual net earnings after taxes and the initial investment into the calculator to determine the average return on investment AROI.

AROI Formula

The following formula is used to calculate an average return on investment.

AROI = ANEAT / II * 100

• Where AROI is the average return on investment (%)
• ANEAT is the average annual net earnings after taxes ($) • II is the initial investment amount ($)

Definition

What is an average return on investment?

The average return on investment, also often denoted as the average rate of return on investment, is a term used to describe the average annual percentage return a particular investment yields over its lifetime, or up to a certain point.

Example Problem

How to calculate an average rate of return?

The following example problem outlines the information and steps needed to calculate an average rate of return.

First, determine the average annual net earnings after taxes. For this example, the investment had a total life of 3 years and the net earnings for those years were, $50,000,$40,000, and $30,000 respectively. This yields average annual net earnings after taxes of$40,000.

Next, determine the initial investment amount. In this case, the initial investment was $200,000.00. Finally, calculate the average rate of return on the investment using the formula above: AROI = ANEAT / II * 100 AROI =$40,000.00 / \$200,000 * 100

AROI = 20%