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Accounting Rate Of Return. The accounting rate of return ARR is a financial ratio of Average Profit to the Average Investment made in the particular project. A Synthesis and an Analysis Journal of Accounting Research Autumn 1970 199 216.
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The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments. One would accept a project if the measure yields a percentage that exceeds a certain hurdle rate used by the company as its minimum rate of return. Accounting Rate of Return shortly referred to as ARR is the percentage of average accounting profit earned from an investment in comparison with the average accounting value of investment over the period.
The accounting rate of return also known as the return on investment gives the annual accounting profits arising from an investment as a percentage of the investment made.
The accounting rate of return ARR is a financial ratio of Average Profit to the Average Investment made in the particular project. This method does not include discounted cash flows which differentiates it from the other capital budgeting methods. The internal rate of return is a discount rate that makes the net present. As we can see from this the accounting rate of return unlike investment appraisal methods such as net present value considers profits not cash flows.
