Accounting Rate of Return Method

This method has long been used by accountants and financial analysts. It is often used to measure overall company data to evaluate specific programmers. It is defined as

ROI = Average annual profit / Average investment

For the example taken here, the average annual profit is Rs 14 (5 + 15 + 20 + 20 + 10/5). The average amount of investment over the five years is Rs 50 [(100 + 0) /2 = 50]. Thus, ROI = 28 per cent.

As with the payback method, it does not consider time value of money. An average annual profit is calculated that makes it impossible to identify annual incomes. 

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