Accounting Rate of Return Excel Template
This Accounting Rate of Return Template will demonstrate two examples of ARR calculation.
Free!Vendor: Corporate Finance Institute®
About this Accounting Rate of Return (ARR) Template
Accounting rate of return (ARR) is calculated as the average net income generated by an asset divided by its average capital cost. This measure is usually expressed as an annual percentage figure and used to help companies decide the profitability of an investment (project, acquisition of assets/ business). This Accounting Rate of Return Template can be useful in determining whether or not to invest in a project.
The implication of ARR is that when ARR of a project is equal to 10%, the project is expected to generate ten cents of net income for every dollar invested each year. By comparing ARR to the required rate of return (hurdle rate), a company can decide to accept the project if it’s equal or greater than the rate or reject it if less than the rate.