# What is ARR?

What is ARR?

ARR is a formula that represents the expected return on an investment or asset. The formula takes the average annual profit of an asset and divides it by the initial investment. The ARR is a metric used to calculate an investment’s profitability fast. A business will generally use the ARR formula to determine the expected rate of return on each product or to help determine which investments or acquisitions to pursue.

This should not be confused with Annual Run Rate (ARR), which refers to the annual revenue target that a company is trending towards earlier in the year. For example, if your company accounts for $100,000 of revenue in March, your ARR is $1.2M ($100k X 12 months).

For more information on this topic, check out this article from our friends at Investopedia