Accounting Rate of Return HoBaRaTV

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The Accounting Rate of Return (ARR) is a financial metric used to evaluate the profitability of an investment or project by comparing the expected annual accounting profit to the initial or average investment cost. Expressed as a percentage, the ARR indicates how much profit a project is likely to generate relative to the resources invested in it. Companies use ARR to decide whether a project meets their profitability goals and is worth pursuing. • To calculate ARR, you divide the average annual accounting profit by the initial or average investment cost and then multiply by 100 to get a percentage. • The ARR is straightforward and easy to calculate, making it a popular tool for assessing projects, especially when comparing multiple potential investments. However, it has some limitations. ARR does not consider the time value of money, which means it doesn't account for when profits are received or how cash flow changes over time. For projects with long time horizons, more sophisticated measures like Net Present Value (NPV) or Internal Rate of Return (IRR) may be more accurate. • Disclaimer: The content presented in this video is aimed solely at providing information and educational insights. It is not crafted to substitute professional advice that would typically be provided by certified financial or legal experts. Relying on any information disseminated through our YouTube channel is undertaken at one's own discretion and risk. It should be noted that the information shared does not guarantee specific financial or business outcomes. • Social Media Channels: • / hobaratv • / hobaratv • / hobaratv • / hobaratv • / hobaratv • / hobaratv

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