Example of Accounting Rate of Return

An example of the Accounting Rate of Return (ARR) is calculating the return on a new investment by comparing its average annual profit to its initial cost. For instance, if a company invests $100,000 in a project that generates an average annual profit of $20,000, the ARR would be 20% ($20,000 / $100,000). This metric helps assess the profitability of an investment relative to its cost.