How to calculate ARRĭoing an ARR calculation is relatively simple. Of course, that doesn’t mean too much on its own, so here’s how to put that into practice and actually work out the profitability of your investments. The Accounting Rate of Return formula is as follows:ĪRR = average annual profit / average investment What is the Accounting Rate of Return formula? For example, if your business needs to decide whether to continue with a particular investment, whether it’s a project or an acquisition, an ARR calculation can help to determine whether going ahead is the right move. Typically, ARR is used to make capital budgeting decisions. What is ARR?Īccounting Rate of Return (ARR) is the percentage rate of return that is expected from an investment or asset compared to the initial cost of investment. But how do you do an ARR calculation? Find out everything you need to know about the Accounting Rate of Return formula and how to calculate ARR, right here. Accounting Rate of Return (ARR) is one of the best ways to calculate the potential profitability of an investment, making it an effective means of determining which capital asset or long-term project to invest in. If you’re making a long-term investment in an asset or project, it’s important to keep a close eye on your plans and budgets.
