The quality of income ratio or earnings quality ratio can be used to indicate that the net income of a business demonstrates high quality characteristics such as, for example, being cash backed, predictable, recurring and conservative.
The free accounting rate of return calculator, available for download below in Excel format, is used to compute the accounting rate of return percentage based on the average annual income and investment for an investment project.
Accounting Rate of Return Calculator November 6th, 2016Team
The accounting rate of return is can be abbreviated to ARR and is sometimes referred to as the average rate of return. The ratio measures the accounting profitability based on net income, and takes no account of the time value of money.
The original DuPont analysis showed that the return on assets is a function of the profitability of the business represented by the profit margin ratio, and the operational efficiency of the business represented by the asset turnover ratio.
Investor ratios are used to measure the ability of a business to earn an adequate return for the owners of the business. The owners have money tied up in the business and need a return commensurate with the risk involved.
The return on equity measures the percentage rate of return the owner of a business gets on their investment. It is calculated by dividing the profit after tax by the owners equity. It is sometimes abbreviated to ROE and also known as the Return on Net Worth.