pppokCreative Destruction
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pppokZero-Bound
What Is Zero-Bound?Zero-bound is an expansionary monetary policy tool where a central bank lowers short-term interest rates to zero, if needed, to stimulate the economy. A central bank that is forced to enact this policy must also pursue other, often unconventional, methods of stimulus to resuscitate the economy.KEY TAKEAWAYSZero-bound is an expansionary monetary policy tool where a central bank lowers short-term interest rates to zero, if needed, to stimulate the economy.Central banks will m...
pppokPenny Stock
What Is a Penny Stock?A penny stock typically refers to the stock of a small company that trades for less than $5 per share. Though some penny stocks trade on large exchanges such as the New York Stock Exchange (NYSE), most trade via over-the-counter (OTC) transactions through the electronic OTC Bulletin Board (OTCBB) or through the privately-owned OTC Markets Group. There is no trading floor for OTC transactions. Quotations are also all done electronically. 0 seconds of 1 minute, 32 secondsV...
pppokCreative Destruction
What Is Creative Destruction?Creative destruction is the dismantling of long-standing practices in order to make way for innovation and is seen as a driving force of capitalism.KEY TAKEAWAYSCreative destruction describes the deliberate dismantling of established processes in order to make way for improved methods of production.Creative destruction is most often used to describe disruptive technologies such as the railroads or, in our own time, the internet.The term was coined in the early 194...
pppokZero-Bound
What Is Zero-Bound?Zero-bound is an expansionary monetary policy tool where a central bank lowers short-term interest rates to zero, if needed, to stimulate the economy. A central bank that is forced to enact this policy must also pursue other, often unconventional, methods of stimulus to resuscitate the economy.KEY TAKEAWAYSZero-bound is an expansionary monetary policy tool where a central bank lowers short-term interest rates to zero, if needed, to stimulate the economy.Central banks will m...
pppokPenny Stock
What Is a Penny Stock?A penny stock typically refers to the stock of a small company that trades for less than $5 per share. Though some penny stocks trade on large exchanges such as the New York Stock Exchange (NYSE), most trade via over-the-counter (OTC) transactions through the electronic OTC Bulletin Board (OTCBB) or through the privately-owned OTC Markets Group. There is no trading floor for OTC transactions. Quotations are also all done electronically. 0 seconds of 1 minute, 32 secondsV...
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The accounting rate of return (ARR) is a formula that reflects the percentage rate of return expected on an investment or asset, compared to the initial investment's cost. The ARR formula divides an asset's average revenue by the company's initial investment to derive the ratio or return that one may expect over the lifetime of an asset or project. ARR does not consider the time value of money or cash flows, which can be an integral part of maintaining a business.
The accounting rate of return is a capital budgeting metric that's useful if you want to calculate an investment's profitability quickly. Businesses use ARR primarily to compare multiple projects to determine the expected rate of return of each project, or to help decide on an investment or an acquisition.1
ARR factors in any possible annual expenses, including depreciation, associated with the project. Depreciation is a helpful accounting convention whereby the cost of a fixed asset is spread out, or expensed, annually during the useful life of the asset. This lets the company earn a profit from the asset right away, even in its first year of service.
The formula for the accounting rate of return is as follows:
ARR = \frac{Average\, Annual\, Profit}{Initial\, Investment}ARR=InitialInvestmentAverageAnnualProfit
Calculate the annual net profit from the investment, which could include revenue minus any annual costs or expenses of implementing the project or investment.
If the investment is a fixed asset such as property, plant, and equipment (PP&E), subtract any depreciation expense from the annual revenue to achieve the annual net profit.
Divide the annual net profit by the initial cost of the asset or investment. The result of the calculation will yield a decimal. Multiply the result by 100 to show the percentage return as a whole number.
As an example, a business is considering a project that has an initial investment of $250,000 and forecasts that it would generate revenue for the next five years. Here's how the company could calculate the ARR:
Initial investment: $250,000
Expected revenue per year: $70,000
Time frame: 5 years
ARR calculation: $70,000 (annual revenue) / $250,000 (initial cost)
ARR = 0.28 or 28%
The ARR is the annual percentage return from an investment based on its initial outlay of cash. Another accounting tool, the required rate of return (RRR), also known as the hurdle rate, is the minimum return an investor would accept for an investment or project that compensates them for a given level of risk.The Formula for ARR
The formula for the accounting rate of return is as follows:
ARR = \frac{Average\, Annual\, Profit}{Initial\, Investment}ARR=InitialInvestmentAverageAnnualProfit
Calculate the annual net profit from the investment, which could include revenue minus any annual costs or expenses of implementing the project or investment.
If the investment is a fixed asset such as property, plant, and equipment (PP&E), subtract any depreciation expense from the annual revenue to achieve the annual net profit.
Divide the annual net profit by the initial cost of the asset or investment. The result of the calculation will yield a decimal. Multiply the result by 100 to show the percentage return as a whole number.
As an example, a business is considering a project that has an initial investment of $250,000 and forecasts that it would generate revenue for the next five years. Here's how the company could calculate the ARR:
Initial investment: $250,000
Expected revenue per year: $70,000
Time frame: 5 years
ARR calculation: $70,000 (annual revenue) / $250,000 (initial cost)
ARR = 0.28 or 28%
The ARR is the annual percentage return from an investment based on its initial outlay of cash. Another accounting tool, the required rate of return (RRR), also known as the hurdle rate, is the minimum return an investor would accept for an investment or project that compensates them for a given level of risk.
The accounting rate of return (ARR) is a formula that reflects the percentage rate of return expected on an investment or asset, compared to the initial investment's cost. The ARR formula divides an asset's average revenue by the company's initial investment to derive the ratio or return that one may expect over the lifetime of an asset or project. ARR does not consider the time value of money or cash flows, which can be an integral part of maintaining a business.
The accounting rate of return is a capital budgeting metric that's useful if you want to calculate an investment's profitability quickly. Businesses use ARR primarily to compare multiple projects to determine the expected rate of return of each project, or to help decide on an investment or an acquisition.1
ARR factors in any possible annual expenses, including depreciation, associated with the project. Depreciation is a helpful accounting convention whereby the cost of a fixed asset is spread out, or expensed, annually during the useful life of the asset. This lets the company earn a profit from the asset right away, even in its first year of service.
The formula for the accounting rate of return is as follows:
ARR = \frac{Average\, Annual\, Profit}{Initial\, Investment}ARR=InitialInvestmentAverageAnnualProfit
Calculate the annual net profit from the investment, which could include revenue minus any annual costs or expenses of implementing the project or investment.
If the investment is a fixed asset such as property, plant, and equipment (PP&E), subtract any depreciation expense from the annual revenue to achieve the annual net profit.
Divide the annual net profit by the initial cost of the asset or investment. The result of the calculation will yield a decimal. Multiply the result by 100 to show the percentage return as a whole number.
As an example, a business is considering a project that has an initial investment of $250,000 and forecasts that it would generate revenue for the next five years. Here's how the company could calculate the ARR:
Initial investment: $250,000
Expected revenue per year: $70,000
Time frame: 5 years
ARR calculation: $70,000 (annual revenue) / $250,000 (initial cost)
ARR = 0.28 or 28%
The ARR is the annual percentage return from an investment based on its initial outlay of cash. Another accounting tool, the required rate of return (RRR), also known as the hurdle rate, is the minimum return an investor would accept for an investment or project that compensates them for a given level of risk.The Formula for ARR
The formula for the accounting rate of return is as follows:
ARR = \frac{Average\, Annual\, Profit}{Initial\, Investment}ARR=InitialInvestmentAverageAnnualProfit
Calculate the annual net profit from the investment, which could include revenue minus any annual costs or expenses of implementing the project or investment.
If the investment is a fixed asset such as property, plant, and equipment (PP&E), subtract any depreciation expense from the annual revenue to achieve the annual net profit.
Divide the annual net profit by the initial cost of the asset or investment. The result of the calculation will yield a decimal. Multiply the result by 100 to show the percentage return as a whole number.
As an example, a business is considering a project that has an initial investment of $250,000 and forecasts that it would generate revenue for the next five years. Here's how the company could calculate the ARR:
Initial investment: $250,000
Expected revenue per year: $70,000
Time frame: 5 years
ARR calculation: $70,000 (annual revenue) / $250,000 (initial cost)
ARR = 0.28 or 28%
The ARR is the annual percentage return from an investment based on its initial outlay of cash. Another accounting tool, the required rate of return (RRR), also known as the hurdle rate, is the minimum return an investor would accept for an investment or project that compensates them for a given level of risk.
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