Annual Rate of Return Calculator
The Annual Rate of Return (ARR) is a key metric used by investors to measure the profitability of an investment over a specific period, typically one year. It helps in comparing different investment opportunities and understanding how effectively capital is being utilized. A higher ARR generally indicates a more profitable investment.
The basic formula for calculating the Annual Rate of Return is:
ARR = ((Ending Value – Beginning Value) / Beginning Value) * 100
Where:
- Ending Value: The total value of the investment at the end of the period. This includes the initial investment plus any profits or distributions received.
- Beginning Value: The initial amount invested at the start of the period.
For more complex scenarios, such as investments that span multiple years or involve regular contributions/withdrawals, more sophisticated methods like the Internal Rate of Return (IRR) or Time-Weighted Return (TWR) might be used. However, the ARR provides a straightforward and useful estimation of an investment's yearly performance.