Advantages And Disadvantages Of Accounting Rate Of Return (ARR)

Advantages Of Accounting Rate Of Return (ARR)

1. ARR is based on accounting information, therefore, other special reports are not required for determining ARR.

2. ARR method is easy to calculate and simple to understand.

3.ARR method is based on accounting profit hence measures the profitability of investment.

Disadvantages Of Accounting Rate OF Return (ARR)

1. ARR ignores the time value of money.

2. ARR method ignores the cash flow from investment

3. ARR method does not consider terminal value of the project.