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Business terms and jargon explained. Your business dictionary
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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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