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Average Rate Of Return

The average rate of return expresses the profits arising from a project as a percentage of the initial capital cost. One of the most common approach is as follows: ARR = (Average annual revenue / Initial capital costs) * 100

Advantages:
The main advantage of ARR is its simplicity. This makes it relatively easy to understand. The ARR is expressed in percentage terms and this, again, may make it easier for managers to use.

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