Accounting Rate of Return (ARR) expresses the average profit per annum as a percentage of the capital outlay. The decision rule (criterion rate) is that projects with an ARR above a defined minimum as set by the organisation are acceptable; however the general rule is that the greater the ARR, the more desirable the project. Definition Accounting rate of return (also known as simple rate of return) is the ratio of estimated accounting profit of a project to the average investment made in the project. ARR is used in investment appraisal. Calculation ARR Calculate the annual net profit from the investment, which could include revenue minus any annual costs or expenses of implementing the project or investment. If the investment is a fixed asset such as property, plant, or equipment, subtract any depreciation expense from the annual revenue to achieve the annual net profit. Divide the annual net profit by the initial cost of the asset, or investment. The result of the calculation will yield a decimal. Multiply the result by 100 to show the percentage return as a whole number.