The accounting rate of return is not a true return because it simply utilizes some average figures from a firm's balance sheet and income statement.

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average profit by the average investment, and it does not take into account the time value of money or other factors that affect the real return on investment. Therefore, it is not a true return measure.

The Accounting Rate of Return Is Not a True Return