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:
“The average Kentuckian may appear a bit confused in his knowledge of history, but he is firmly certain about current politics. Kentucky cannot claim first place in political importance, but it tops the list in its keen enjoyment of politics for its own sake. It takes the average Kentuckian only a matter of moments to dispose of the weather and personal helath, but he never tires of a political discussion.”
—For the State of Kentucky, U.S. public relief program (1935-1943)
“At the crash of economic collapse of which the rumblings can already be heard, the sleeping soldiers of the proletariat will awake as at the fanfare of the Last Judgment and the corpses of the victims of the struggle will arise and demand an accounting from those who are loaded down with curses.”
—Karl Liebknecht (1871–1919)
“If a man, notoriously and designedly, insults and affronts you, knock him down; but if he only injures you, your best revenge is to be extremely civil to him in your outward behaviour, though at the same time you counterwork him, and return him the compliment, perhaps with interest.”
—Philip Dormer Stanhope, 4th Earl Chesterfield (1694–1773)