Business Terms and Jargon Explained

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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