Accounts and Finance

Quantitative Investment Appraisal

Average rate of return

Average rate of return is a percentage that shows the amount of profit someone gets back from an investment. This takes into account the profit and not the time.

                           [Net return (profit) per annum / Capital Outlay (cost)] x 100 = ARR

Payback Period

The Payback Period is the amount of time a firm would take to recover the investment made. This takes into account the time and not the profit.

                           [Amount required / Net Cash Flow in year] x 12 = Payback Period