# Average Return Calculator

The Average Return Calculator can calculate an average return for two different scenarios. The first is based on cash flows, and the second calculates a cumulative and average return of multiple investment returns with different 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

Average return is defined as the mathematical average of a series of returns generated over a period of time. In regards to the calculator, average return for the first calculation is the rate in which the beginning balance concludes as the ending balance, based on deposits and withdrawals that are made in-between over time. The time value of money is accounted for, which is a theory that states that a dollar today is worth more than a dollar tomorrow. For the second calculation, average return is the total return of the entire period (for all returns involved) divided by the number of periods. The time value of money is also accounted for here.

### Average Rate of Return

The average rate of return (ARR), also known as accounting rate of return, is the average amount (usually annualized) of cash flow generated over the life of an investment. ARR does not account for the time value of money. As a result, it is best to use ARR in conjunction with other metrics when considering large financial decisions.

Both calculations above take into account the time value of money when computing the average return. Both average return and ARR are commonly used methods of determining relative performance levels.

### Cumulative Return

Cumulative return refers to the aggregate amount an investment gains or loses irrespective of time, and can be presented as either a numerical sum total or as a percentage rate. It is generally contrasted with annual return, which is the return (or loss) of an investment in a single year only. Cumulative return should also be distinguished from average annual return, which is the total of all the returns in a given period normalized annually.

Because most financial formulas revolve around and are presented in annualized figures, cumulative return as a metric is less commonly useful due to the lack of meaningful comparisons. Similar to ARR, cumulative return is best used in conjunction with other measures of performance.