Learning objective
Calculate average rate of return.
Read the explanation, check the common trap, then practise with flashcards and questions.
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Flashcards
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Questions
Topic
Quantitative skills in business
Subtopic
Calculation requirements
Study support
Understand this objective
Quick explanation
Calculate average rate of return
- This point belongs to Quantitative skills in business, especially Calculation requirements.
- You need to be able to calculate average rate of return.
- The key ideas to know are average rate of return.
- Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.
Key concepts
Why it matters
This objective helps connect Calculation requirements to exam-style questions, flashcards, and revision notes for Quantitative skills in business.
Quick student answer
A small manufacturer invested £15,000 in new machinery. After two years, the machinery produced a net profit of £9,000. Calculate the average rate of return and state whether the investment was profitable.
Direct answer
60%
How it works
Average rate of return = (Net profit ÷ Initial investment) × 100. Net profit = £9,000, Initial investment = £15,000. (£9,000 ÷ £15,000) × 100 = 0.6 × 100 = 60%. A 60% return indicates the investment was profitable.
Key terms
- average rate of return: The percentage of profit earned on an investment relative to the amount invested, expressed as (Net profit ÷ Initial investment) × 100.
Common trap
Confusing average rate of return with simple return: The average rate of return takes the total net profit over the investment period and divides it by the initial investment, then multiplies by 100 to give a percentage.
Related questions
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Revision notestopic notes
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Open revision notesRelated learning objectives
- Calculate percentages and percentage changes in business contexts.
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- Calculate averages in business contexts.
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- Calculate revenue, costs and profit.
Calculation requirements
- Calculate gross profit margin and net profit margin ratios.
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- Calculate cash flow forecast figures, including total costs, total revenue and net cash flow.
Calculation requirements