It is also known as the Average rate of return.
ARR is a financial ratio used in capital budgeting.
By dividing the net income from an investment by the total amount invested in obtaining the ARR.
It means, if your business needs to decide whether to continue with a particular investment, whether it’s a project or an acquisition, an ARR calculation can help to determine whether going ahead is the right move.
20000 / 100000 = 20% is the ARR