Accounting Rate of Return (ARR) | Explained with Example

In this lesson, we go through an example of the Accounting Rate of Return (ARR). We explain what it is, why it is calculated, and the formula for the Accounting Rate of Return (ARR) as well as a thorough example. We also go through the advantages and disadvantages of the Accounting Rate of Return (ARR).
Timestamps:
Accounting Rate of Return Definition: 00:00
Interpret / Analyze the Accounting Rate of Return: 00:50
Accounting Rate of Return Formula: 01:52
Accounting Rate of Return Example: 03:08
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[@Counttuts]

Accounting Rate of Return (ARR): Example 2 (When given cash inflows and not profits): kzbin.info/www/bejne/a4WrmqmYfbR6rNE

[@kafulamilambo8617]

wow thank you so much I was failing to understand why other examples have to calculate depreciation or subtract it from the figures given, but you have explained quite well the use of net profits and the subtraction which only comes when you are given cash flows instead. This is well appreciated, you are a great lecturer

[@CrownAdekunle]

Simple and straight forward Thank you

[@divineethy7684]

This video was very helpful and straight forward,,, thank you

[@thembekatg1172]

No you are good prof, been watching the your video they are helping indeed.

[@sethu2890]

this was so helpful, thank you!

[@lyndenice6401]

Your the Best teacher ever

[@mohamedsamhan390]

Obviously superb for those WHO indeed

[@mikaellepierre-paul9228]

This is really helpful, thank you so much

[@amckenzie8579]

Very helpful.

[@nevakasichana7930]

Thnx.,,explanation is easy to understand

[@bradleythirumurthi]

Thank you sir!

[@EzekielBb]

Thank you 🙏🏻

[@avhathumashau6053]

Thank you so much😭❤️

[@Obeyshingie]

Thank you

[@apeirogonyouth]

thank you.

[@ornellamasengo3736]

Let me tell you that you are the best, I wish you were my lecturer

[@ShamimHassad-mz8hm]

Wow simple

[@prisciousmnukwa3523]

Wow! Ur videos are so helpful they make it easier to understand the calculations, if u're asked to calculate NPV without without discount factors how to I calculate it?

[@fanashaa3130]

Thank u

[@violetmuthoni5744]

Do you calculate the 28% tax rate as a depreciation when given cash flows instead of net profit?

[@yourgirlstyebrooke]

Hello again, so I wanted to know, in some questions you see the total profits been deducted from the investment to get profits... how do you know when to use this method... please I need answers

[@shannelmokgabudi9825]

I wasn’t given a tax rate but I was given revenues and expenses instead of profits. How do I go about it?

[@lesegomoroke2482]

What is the asset’s required rate of return if beta = 0,9; risk free rate of return = 8% and return on the market portfolio of assets = 14%

[@ayandaphohlo1200]

Do we always add salvage value all the time?

[@Rose-xo8mx]

How to calculte arr when depreciation given in reducing blnce method?

[@ejikea.francis]

What is you are given Net working capital?

[@Jaxen_Dalentos]

What about mutually exclusive projects.?

[@cuongnguyentan246]

What is the meaning of average investment fomulla. Why salvage value is considering as an investment in average investment fomular

[@Devilupz]

is annual income same as net profits?

[@hellaotieno1639]

well understood

[@adejohloveth7265]

What if I'm only given cash flows and no profit, and no depreciation

[@obaidsalim4468]

what is the actual profit?

[@sarahakin02]

what about the tax?

[@meritakpotareno6681]

What if initial investment is not given

[@idiongjustina1137]

Pls why didn't you calculate the tax given in the question?

[@folaakin2914]

What happens to the tax rate of 28%, and straight line method depreciation?

[@Counttuts]

That would have been taken into account if we were given cashflows and not profits.

[@sandisocakwe4149]

What if there is a year where there was loss, do you subtract from profits?

[@Counttuts]

Yes

[@rahmaruun5512]

Kindly do all capital budgeting method. PBP,NPV, IRR

[@rahmaruun5512]

And profitability index

[@Counttuts]

All these have been done, check them out on our channel.

[@rahmaruun5512]

@@Counttuts I've seen them.Can u do Account liability and specialized Accounting

[@ihalagen]

Can you Explain why Salvage Value was added to the investment instead deduct ? Salvage Value is not Investment and It is a recovery of Investment which deserved to be deducted ??

[@Counttuts]

Just like any other calculation of an average ratio, average investment is calculated as the sum of the beginning (initial investment) and ending book value (salvage value) of the project divided by two. Another variation of of ARR formula denominator is using initial investment instead of average investment.

[@marybunmi1026]

In examples given to me by my lecturer salvage is not given.why?

[@Counttuts]

@@marybunmi1026 Salvage value does not always have to be given. The asset may not yield a return at the end of the project and will therefore not have salvage value.

[@execadmin8377]

@@Counttuts I have the same question. I am taking it with a grain of salt. Its very counter-intuitive. My follow up question would be this, what if the asset has a disposal fee? that would make the residual value in the negative. thank you for the content.

[@olaluwoyeopeoluwa5990]

was the initial investment not 60,000

[@agamugoroesther1500]

Why is it that we didnt use the cost of capital?

[@Counttuts]

Because we didn't need it for the ARR

[@raph6488]

Cash flow examples but it is still confusing

[@yourgirlstyebrooke]

You didn’t take Inyo Acct the tax rate... I thought the tax rate was supposed to be the deducted from the profit???please kindly expansiate

[@Counttuts]

We didn't need to, we were given the net profits already.

[@mml169]

i recognize that accent

[@faroukmubarak8364]

Thank you

[@sobiyeolufemi1230]

Thank you