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:
“It’s not that we want the political jobs themselves ... but they seem to be the only language the men understand. We don’t really want these $200 a year jobs. But the average man doesn’t understand working for a cause.”
—Jennie Carolyn Van Ness (b. c. 1890–?)
“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)
“If he should take back his spirit to himself, and gather to himself his breath, all flesh would perish together, and all mortals return to dust.”
—Bible: Hebrew, Job 34:14-15.