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Accounting Rate Of Return Calculator

Work out accounting rate of return instantly with clear inputs, formula shown and shareable results.

About Accounting Rate Of Return Calculator

Accounting rate of return divides average annual accounting profit — after depreciation — by the investment. Two conventions exist: on initial investment, or on average investment, which is the mean of opening cost and closing residual value and roughly doubles the reported return.

Formulas

Average investment

Average investment = (Initial investment + Residual value) / 2

ARR

ARR % = Average annual profit / Investment x 100

Worked example

With the default values below, Accounting Rate Of Return Calculator returns ARR on average investment of 24.71%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Average annual accounting profit
42,000
Initial investment
300,000
Residual value at end of life
40,000

Results

ARR on average investment
24.71%
ARR on initial investment
14.00%
Average investment
$170,000.00
Average annual profit
$42,000.00

Step by step

  1. 1Values used
  2. 2Average investment
  3. 3ARR
  4. 4ARR on average investment= 24.71
  5. 5ARR on initial investment= 14.00
  6. 6Average investment= 170,000.00
  7. 7Average annual profit= 42,000.00

Assumptions and limits

  • The result is derived only from the 3 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax or fees or charges into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Why does ARR use profit rather than cash flow?

Because it is designed to align with reported return on capital employed, which is an accruals measure. That also makes it inferior to NPV for investment decisions.

Which denominator should I quote?

State it explicitly. ARR on average investment is roughly double the initial-investment figure, so comparing the two silently is misleading.

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