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
When JD Sports evaluates opening a new store, ARR lets them compare the projected annual profit as a percentage return against their 8% cost of capital benchmark.
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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