Beruflich Dokumente
Kultur Dokumente
Seminar on
Submitted to
Shivaji University Kolhapur.
By
Mrs. V.B.Shah
Through
Year
2011-2012
This clearly shows that the ARR is measure based on the accounting
profit rather than the cash flows and is very similar to the measure of
rate of return on capital employed, which is generally used to measure
the overall profitability of the firm. The calculation of ARR may be further
discussed with reference to equal annual profits and unequal annual
profits as follows:-
• Equal Profits:
In case the expected profits(after Tax) generated by a project are
equal for all the years than the annual profit itself is the average profits.
So, this annual profit will be compared with the average investment to
find out the ARR as follows.
• Unequal Profits:
If the project is expected to generate unequal profits on uneven
stream of profit over different year, then the ARR may be calculated by
finding out the average annual profits and then comparing it with the
average investment of the project as follows:
Average Investment:-
The average investment refers to the average quantum of funds
that remains invested of blocked in the proposal over its economic life.
The average investment of a proposal is affected by the method of
depreciation, salvage value and the additional working capital required
by the proposal. The following two approaches are available to calculate
the average investment.
18.000
ARR = x 100
90.000
ARR = 20 %