Which three of the following are drawbacks of using the accounting rate of return?
A) It relates accounting profit to investment.
B) It uses an arbitrary cut- off rate.
C) It can be calculated in a variety of ways.
D) Profit is a poor substitute for cash flow.

Question

Quizplus · Accepted Answer

The accounting rate of return has several drawbacks, including the use of an arbitrary cut-off rate, the fact that it can be calculated in a variety of ways, and the fact that profit is a poor substitute for cash flow. Additionally, it only relates accounting profit to investment, and does not take into account other important metrics such as the time value of money or the risk associated with an investment.

Which Three of the Following Are Drawbacks of Using the Accounting