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Indicators of efficiency of investments

Calculation of key performance indicators in the Budget Plan Express
Payback period – PB
Discounted payback period – DPB
Net discounted (present) value – NPV
Profitability index – PI
Internal rate of return – IRR
Average rate of return – ARR
Modified IRR – MIRR (Modified Internal Rate of Return)
Economic profit measure EVA (Economic Value Added) and other complex indicators

Average rate of return – ARR


Average rate of return – ARR, %

Average rate of return is the ratio between average annual receipts and the amount of initial investment, calculated by the formula:

    ARR is interpreted as the average annual income that can be obtained from the project. The indicator is simple and convenient, but also has disadvantages. In particular, the time value of money is not taken into account. Budget-Plan Express all calculated indicators of efficiency of investments
    Where:
    CFn – net cash flow in the n period,
    In – initial investment in the n period (or total investment),
    N – duration of the project in years.

ARR is interpreted as the average annual revenue that can be obtained from the project.

The indicator is simple and convenient, but it also has drawbacks. In particular, the time value of money is not taken into account.




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