ABSTRACT

Kay, 1 in a recent paper in this journal, questioned the predominant view concerning the adequacy of the accounting rate of return as a proxy for the true economic rate of return. Indeed he suggested that—

“… under quite plausible circumstances a simple average accountant’s rate of return will be a good estimator of the true rate of return”.

and also

“The accountant’s rate of profit, measured over a period of years, will be an acceptable indicator of the true rate of return: it is over a single year that it may prove seriously misleading”.