Average accounting return

The average accounting return (AAR) is the average project earnings after taxes and depreciation, divided by the average book value of the investment during its life.^[1]

There are three steps to calculating the AAR.

First, determine the average net income of each year of the project's life. Second, determine the average investment, taking depreciation into account. Third, determine the AAR by dividing the average net income by the average investment.

References

1. ^ Ross, Stephen A., Randolph W. Westerfield, and Jeffrey Jaffe. (2008). Corporate Finance. McGraw-Hill/Irwin. pp. 166. ISBN 978-0-07-310590-1.