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What is Accounting Rate of Return

The accounting rate of return is an accounting ratio that allows comparison of different projects. It is the average profits of a project over the initial capital investment presented as a percentage.

Average profits x 100
initial capital

e.g Capital investment is 200K

Year 1 profit 12K
Year 2 profit 40K
Year 3 profit 20K

Total profit for project is 72K

Average profit is 24K

Accounting rate of return is 24 divided by 200 times 100 is 12%

This can now be compared with other projects.

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Term created / updated 2005-11-09 12:34:44

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