To calculate AAR, you simply take the annual cash-on-cash returns for each year of an investment and average them.

What is the formula of ARR in finance?

The Accounting Rate of Return formula is as follows: ARR = average annual profit / average investment.

What is a good ARR?

If the ARR is equal to or greater than the required rate of return, the project is acceptable. If it is less than the desired rate, it should be rejected. When comparing investments, the higher the ARR, the more attractive the investment. More than half of large firms calculate ARR when appraising projects.