Accounting rate of return

Formula

Average Rate of Return Method

• [\text{Average Rate of Return} = \frac{\text{Average Annual Profit}}{\text{Net Investment in the Project}} \times 100 ]
• [\text{Average Annual Profit} = \frac{\text{Total Profit After Depreciationn and After Tax}}{\text{Number of Years}} ]

Return Per unit of Investment Method

• [\text{Return Per unit of Investment} = \frac{\text{Total Profit After Depreciationn and After Taxes}}{\text{Net Investment in the project}} \times 100 ]

Return on Average Investment Method

• [\text{Return on Average Investment} = \frac{\text{Total Profit After Depreciationn and After Taxes}}{\text{Average Investment}} \times 100 ]
  • [\text{Average Investment} = \frac{\text{Initial Investment + Scrap Value}}{2} ]
  • [\text{Average Investment} = \frac{\text{Initial Investment}}{2} ]
  • [\text{Average Investment} = \frac{\text{Initial Investment + Salvage Value}}{2} + \text{Working Capital} + \text{Scrap Value} ]