APPENDIX II
VALUATION: A GLOSSARY OF TERMS
Accounting rate of return (ARR). A ratio used to show the viability of an investment. It is measured as undiscounted average earnings after taxes and depreciation divided by average book value of the investment over its life. The higher the number, the better the investment. The analyst then identifies projects with an accounting return greater than a cutoff rate. By comparing this ratio among companies, an analyst can find an average multiple to use in setting a price.
Accrual accounting. A method of accounting that reports revenues in the year they are earned and deducts or capitalizes expenses in the year they are incurred, whether or not payment is received or made, unless it is a cash transaction. ...
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