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

Question

Quizplus · Accepted Answer

The accounting rate of return is based on accounting data such as the average net income and the average book value of assets, which are not necessarily representative of the actual returns earned by the firm. Therefore, it is not a true return measure but rather a financial ratio used to assess the profitability of an investment.

The Accounting Rate of Return Is Not a True Return