Characteristics of Accounting Rate of
Return
1.
Popular in professional
This method
is popular in professional because it is based on accounting profit and
professional find it easy to deal with this method.
2.
Easy & Understandable
Like payback
period it is very simple to calculate and understand. Furthermore, it is easy
to calculate due to availability of financial data.
3.
Ignore Time Value of money
This method
does not take into account the time value of money rather is calculated on the
bases of historical data.
4.
Does not Absolute measure
This method
provides result in % and not in absolute terms therefore some time it is not
possible evaluate the project with this method accurately.
5.
Subject to Manipulation
This method base on the accounting profit therefore may be
manipulated with the help of accounting policies.
