# Accounting Rate of Return (ARR)

The Accounting Rate of Return (ARR) is a type of financial ratio used to measure the profitability of a project or investment. It is calculated by dividing the average accounting profit earned by the initial capital invested. ARR expresses the rate of return as a percentage.

The formula for calculating ARR is: ARR = Average Accounting Profit / Initial Investment x 100

For example, if a company invests $20,000 in a project and earns an average accounting profit of $5,000 annually over the life of the project, the ARR would be 25%. This means that for every $1 invested, the project earns 25 cents in return.