Average Rate of Return [or Accounting Rate of Return] is one of the ratios sometimes used in investment appraisal. It calculates the returns from an investment over the period of the investment expressed as a percentage of the original sum invested. As an example, a new machine costs $100,000 and generates net cash flow of $50,000 each year over the four years of its expected life. The total return from the machine is $200,000 minus the original investment of $100,000 making a net return of $100,000. To calculate the net return per annum, $100,000 is divided by four (being the expected life of the machine in years) that equates to $25,000 per annum. Expressed as a percentage of the capital cost, the average rate of return is 25%. As it does not take into account the time value of money, Net Present Value [NPV] is more commonly used. See also Net Present Value.« Back to Glossary Index
Average Rate of Return
Discover the world’s largest Glossary of Procurement terms
With over 800 Procurement specific terms (and growing) you will find everything you need to know or thought you knew about the Procurement function. Our aim is to provide you with a comprehensive list collated from the Comprara Groups hub of training and consulting source materials.The Procurement Glossary has been compiled by industry expert Paul Rogers.