Accounting Rate of Return Calculator
Looks at the average profit you expect to earn from a project compared to its average cost.
A quick snapshot to help managers approve or reject a new project.
After depreciation and tax
What the asset is worth at the end
Accounting rate of return
36.36%
Average annual profit ÷ average investment
Average investment
$55,000
(Initial + salvage) ÷ 2
Annual profit
$20,000
The numerator
Verdict
Approve
Above the common 15% hurdle
Step by step
- 1
Average investment
($100,000 + $10,000) ÷ 2 = $55,000
- 2
ARR
$20,000 ÷ $55,000 = 36.36%
About this calculator
For a quick approval check on capital projects before doing a full NPV analysis.
When comparing projects on accounting profit rather than cash flow.
Formula
ARR = Average annual profit ÷ ((Initial investment + Salvage) ÷ 2)
How to use it
- 1
Enter the project's average annual profit after depreciation and tax.
- 2
Enter the initial investment and the salvage value at the end.
- 3
Read the ARR — many companies approve projects above a 15% hurdle.
Example: $20,000 average profit on $100,000
With $10,000 salvage, average investment is $55,000 → ARR = 36.36%. Press Reset to verify.