Accounting Rate of Return - ARR

AAA

DEFINITION of 'Accounting Rate of Return - ARR'

The amount of profit, or return, that an individual can expect based on an investment made. Accounting rate of return divides the average profit by the initial investment in order to get the ratio or return that can be expected. This allows an investor or business owner to easily compare the profit potential for projects, products and investments.

INVESTOPEDIA EXPLAINS 'Accounting Rate of Return - ARR'

ARR is considered a straight-line method of gathering quantitative information. While this is a positive measure in some aspects, its lack of sophistication is also a drawback. ARR does not consider the time value of money, which means that returns taken in during later years may be worth less than those taken in now, and does not consider cash flows, which can be an integral part of maintaining a business.

RELATED TERMS
  1. Time Value of Money - TVM

    The idea that money available at the present time is worth more ...
  2. Profit

    A financial benefit that is realized when the amount of revenue ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Future Value - FV

    The value of an asset or cash at a specified date in the future ...
  5. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
  6. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
Related Articles
  1. Insurance

    Ancient Accounting Systems

    Learn how accounting evolved to keep records of increasingly complex transactions and civilizations.
  2. Professionals

    Finding The Right Accounting Certification

    An accounting certification may be the boost your career needs. Find out how to get the most bang for your buck.
  3. Personal Finance

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  4. Fundamental Analysis

    Internal Rate Of Return: An Inside Look

    Use this method to choose which project or investment is right for you.
  5. Investing

    Given a good bookkeeping system, would financial accounting be necessary?

    Bookkeeping and financial accounting may seem like they are new creations, but variations have been around for millennia. The first record keeping systems, according to some, originated in about ...
  6. Retirement

    What is the difference between principles-based accounting and rules-based accounting?

    Almost all companies are required to prepare their financial statements as set out by the Financial Accounting Standards Board (FASB), whose standards are generally principles-based. Recently, ...
  7. Options & Futures

    Mark-To-Market Mayhem

    Did this accounting convention contribute to the credit crisis of 2008? Find out here.
  8. Taxes

    What is the best method of calculating depreciation for tax reporting purposes?

    Learn the best method for calculating depreciation for tax reporting purposes according to generally accepted accounting principles, or GAAP.
  9. Fundamental Analysis

    Are accounts receivable used when calculating a company's debt collateral?

    Learn how accounts receivables are recorded as assets on a balance sheet; they are used when calculating a company's total debt collateral.
  10. Professionals

    How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center