Accounting Rate of Return (ARR)
An investment appraisal method that expresses the average annual profit from an investment as a percentage of the initia...
Formula
ARR = (Average Annual Profit ÷ Initial Investment) × 100
Real World
Primark evaluating a new store would calculate ARR to check whether the expected annual profit as a percentage of build costs beats its minimum required return before committing to the site.
Exam Focus
Use average annual profit (not cash flow) in the numerator; confusing profit with cash flow is the most common ARR error.
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