The average accounting return (AAR) is the average project earnings after taxes and depreciation, divided by the average book value of the investment during its life.
There are three steps to calculating the AAR.
First, determine the average net income of each year of the project's life. Second, determine the average investment, taking depreciation into account. Third, determine the AAR by dividing the average net income by the average investment.
Average accounting return does have a disadvantage; it does not take time value of money into account. Therefore, there is no clear indication of profitability.
Famous quotes containing the words average, accounting and/or return:
“A two-week-old infant cries an average of one and a half hours every day. This increases to approximately three hours per day when the child is about six weeks old. By the time children are twelve weeks old, their daily crying has decreased dramatically and averages less than one hour. This same basic pattern of crying is present among children from a wide range of cultures throughout the world. It appears to be wired into the nervous system of our species.”
—Lawrence Kutner (20th century)
“I, who am king of the matter I treat, and who owe an accounting for it to no one, do not for all that believe myself in all I write. I often hazard sallies of my mind which I mistrust.”
—Michel de Montaigne (1533–1592)
“Love is life. All, everything that I understand, I understand only because I love. Everything is, everything exists, only because I love. Everything is united by it alone. Love is God, and to die means that I, a particle of love, shall return to the general and eternal source.”
—Leo Tolstoy (1828–1910)