July 2021

Accounting Rate of Return ARR Definition and Formula

Next, we’ll build a roll-forward schedule for the fixed asset, in which the beginning value is linked to the initial investment, and the depreciation expense is $8 million each period. The incremental net income generated by the fixed asset – assuming the profits are adjusted for the coinciding depreciation – is as follows. The Accounting Rate of Return (ARR) is the average net income earned...

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