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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