Accounting Rate of Return (ARR) Calculator

Accounting Rate of Return (ARR) Calculator estimates the Accounting Rate of Return (ARR) or Return on Investment (ROI) percentage of average profit earned from investment compared to the average value of investment over a defined period. For those new to ARR or who want to refresh their memory, we have created a short video which cover the calculation of ARR and considerations when making ARR calculations.

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Accounting Rate of Return Formula

The Accounting Rate of Return (ARR) Calculator uses several accounting formulas to provide visability of how each financial figure is calculated. Each formula used to calculate the accounting rate of return is now illustrated within the ARR calculator and each step or the calculations displayed so you can assess and compare against your own manual calculations.

Accounting Rate of Return, a Useful System for You to Make Profitable Investments

The Accounting rate of return is used by businesses to measure the return on a project in terms of income, where income is not equivalent to cash flow because of other factors used in the computation of cash flow. Calculating ARR or Accounting Rate of Return provides visibility of the interest you have actually earned on your investment; the higher the ARR the higher the profitability of a project.

Whether it's a new project pitched by your team, a real estate investment, a piece of jewelry or an antique artifact, whatever you have invested in must turn out profitable to you. Every investment one makes is generally expected to bring some kind of return, and the accounting rate of return can be defined as the measure to ascertain the profits we make on our investments. If the ARR is positive (equals or is more than the required rate of return) for a certain project it indicates profitability, if it's less, you can reject a project for it may attract loss on investment.

Why Use the Accounting Rate of Return (ARR) Calculator

The ARR calculator makes your Accounting Rate of Return calculations easier. You just have to enter details as defined below into the calculator to get the ARR on any particular project running in your company.

• Incremental revenue - This can also be defined as the revenue that you are going to generate every year.
• Incremental expenses - It is defined as the main expenses that are going to be incurred while the project is running.
• Initial investment - The basic initial cost of the project.
• Final investment - The amount finally invested in the project.
• Number of years - This refers to the duration of the project, for the duration it is expected to run.

How to Calculate the Accounting Rate of Return (ARR)

ARR for projections will give you an idea of how well your project has done or is going to do. Calculating the accounting rate of return conventionally is a tiring task so using a calculator is preferred to manual estimation. If you choose to complete manual calculations to calculate the ARR it is important to pay attention to detail and keep your calculations accurate. If your manual calculations go even the slightest bit wrong, your ARR calculation will be wrong and you may decide about an investment or loan based on the wrong information. Hence using a calculator helps you omit the possibility of error to almost zero and enable you to do quick and easy calculations. Using the ARR calculator can also help to validate your manual account calculations.

The ARR calculator created by iCalculator can be really useful for you to check the profitability of the past, present or future projects. It is also used to compare the success of multiple projects running in a company. Using ARR you get to know the average net income your asset is expected to generate.

Benefits of using the ARR calculator

Using ARR calculator can really help your business grow financially; it can help your business in different ways as stated below:

• It can help you understand your total profits very easily.
• After using the calculator you will know the net earnings after tax and depreciations, which is an important factor while appraising any project proposals.
• Calculations will satisfy the interest of a business owner and will result in getting more investors' attention.
• You will know the current performance of the company.

Areas where the accounting rate of return (ARR) can be applied

The ARR can be used by businesses to make decisions on their capital investments. It can help a business define if it has enough cash, loans or assets to keep the day to day operations going or to improve/add facilities to eventually become more profitable.

Calculating ARR can also be beneficial to determine the below factors:

• Payback Period (PP) or Discounted Payback Period (DPP) - This refers to the time required to reach the break-even period on any investment. In other words, it's the amount of time it takes to get back the full investment and become profitable.
• Net Present Value (NPV) - This means the difference between the present value of cash inflow in any company and present value of cash outflow over a period of time.
• Internal Rate of Return (IRR) - This is similar to net present value; it is used to estimate the profitability of potential investments.

Summary

Every business tries to save money and further invest to generate more money and establish/sustain business growth. If you run your own business, are responsible for the financial elements of a product or product design or a project manager, remember that your profits are secure only if the investments are based on accurate financial analysis.

It is important that you have confidence if the financial calculations made so that your decision based on the financial data is appropriate. iCalculator helps you make an informed financial decision with the ARR online calculator. It will never disappoint you.