Average Return Calculator
Our Average Return Calculator determines a mean return in two distinct ways. The initial method evaluates cash‑flow‑driven returns, while the second aggregates and averages returns from several investments that have varying holding periods.
Average Return Based on Cash Flow
This calculator estimates the average annual return of an entire account based on the starting and ending balances as well as the dates and amounts of deposits or withdrawals.
Average and Cumulative Return
This calculator estimates the average annual return as well as the cumulative return for different investment returns with different holding periods.
Average Return
An average return represents the arithmetic mean of a series of periodic gains or losses. In the context of this tool, the first type of average return reflects the rate at which the opening balance grows into the ending balance, taking into account all interim deposits and withdrawals. This calculation incorporates the time‑value‑of‑money principle, which holds that a dollar today is worth more than a dollar tomorrow. The second approach computes the overall return for the entire timeframe—summing every individual return—and then divides it by the number of periods, also adjusting for the time value of money.
Average Rate of Return
The Average Rate of Return (ARR), sometimes called the accounting rate of return, measures the typical (often yearly) cash flow produced by an investment over its lifespan. Because ARR ignores the time value of money, it should be paired with additional performance indicators when evaluating significant financial choices.
Each of the above calculations incorporates the time‑value‑of‑money factor to derive the average return. Both the average return and ARR are widely employed techniques for assessing relative performance.
Cumulative Return
Cumulative return denotes the total gain or loss of an investment over its entire holding period, expressed either as a raw figure or a percentage. It differs from an annual return, which captures performance for just one calendar year. Moreover, cumulative return is not the same as average annual return, which spreads the sum of all period returns across each year.
Since most financial metrics are quoted on an annual basis, cumulative return offers limited comparability on its own. Like ARR, it is most informative when combined with additional performance measures.