Accounting Rate of Return Template
Accounting Rate of Return Template
This accounting rate of return template will demonstrate two examples of ARR calculations.
Below is a screenshot of the accounting rate of return template:
Download the Free Template
Enter your name and email in the form below and download the free template now!
Accounting Rate of Return (ARR) is the average net income an asset is expected to generate divided by its average capital cost and expressed as an annual percentage. The ARR is a formula used to make capital budgeting decisions. These typically include situations where companies are deciding on whether or not to proceed with a specific investment (a project, an acquisition, etc.) based on the future net earnings expected, compared to the capital cost.
The formula for ARR is: ARR = average annual profit / average investment
where,
Average investment = (book value at year 1+ book value at end of useful life) / 2
Average annual profit = total profit over investment period/number of years
If the ARR is equal to 5%, this means that the project is expected to earn five cents for every dollar invested per year.
In terms of decision making, if the ARR is equal to or greater than the required rate of return, the project is acceptable because the company will earn at least the required rate of return.
If the ARR is less than the required rate of return, the project should be rejected. Therefore, the higher the ARR, the more profitable the investment.
More Free Templates
For more resources, check out our business templates library to download numerous free Excel modeling, PowerPoint presentation, and Word document templates.
Additional Resources
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Analyst Certification FMVA® Program
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
- What is Financial Modeling?
- How Do You Build a DCF Model?
- What is Sensitivity Analysis?
- How Do You Value a Business?
Excel Tutorial
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Launch CFI’s Excel Crash Course now to take your career to the next level and move up the ladder!
Accounting Crash Courses
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Boost your confidence and master accounting skills effortlessly with CFI’s expert-led courses! Choose CFI for unparalleled industry expertise and hands-on learning that prepares you for real-world success.
