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Accounting Rate of Return

Net income vs net investment.

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The "Accounting Rate of Return" is the net income generated from an investment during a period, divided by the book value of the investment at the start of the period - and can be expressed as

R.O.R = Net Income in period / Book Value of Net Investment at start of period                  (1)

Example - R.O.R 

A company did an initial investment of 200 five years ago. The book value of the investment at the end of year 4 shows that the investment has depreciated to 100. With net income related to the investment in the 5th year of 50 - the R.O.R for the last period can be calculated as

R.O.R = 50 / 100

       = 0.5

       = 50%

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Related Topics

  • Economics

    Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.

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