FFM candidates have struggled with the concept of the accounting rate of return. This article aims to help candidates with this topic. The accounting rate of return is used in capital budgeting to estimate whether to proceed with an investment. The calculation is the accounting. The accounting rate of return (ARR), also called the simple or average rate of return, is an investment formula used to measure the annual earnings or profit an. In case of mutually exclusive projects, accept the one with highest ARR. Auditing Cost Forensic Financial Fund Governmental Management Social Tax. Financial Internal Firms Report. Creditors and investors use accounting net operating income to evaluate the performance of management. Dictionary Term Of The Day. If several investments are proposed and the management have to choose the best due to limited funds, the proposal with the highest accounting rate of return is preferred. Accounting rate of return method does not take into account the time value of money. The measure does not factor in the time value of money. A small short-term loan, with very high interest rates, that the borrower promises to repay on or near the next payday. Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator. About Contact Disclaimer Privacy Site map Copyright. If the project involves cost reduction instead of earning a profit, then the numerator is the amount of cost savings generated by the project. Creditors and investors use accounting net operating income to evaluate the performance of management. Both initial and average investment are used as denominator of ARR formula. Operations Bestsellers Constraint Management Human Resources Guidebook Inventory Management Project Management Purchasing Guidebook. The ARR is a percentage return. The formula for the accounting rate of return is:. Contact Newsletter Tell a friend News Company Conditions of use Help?