Benefit- Cost Ratio

Posted in Finance, Accounting and Economics Terms, Total Reads: 336
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Definition: Benefit- Cost Ratio

The Benefit-Cost ratio (BCR) establishes the relationship between the cost and benefits of a proposed project or proposal. It is an essential parameter to evaluate the value of money that would be expended on the project.


It is given by:

BCR= Benefits of a project or proposal (in monetary terms)/ Costs (in monetary terms)


Since at times, benefits and costs cannot be measured exclusively in financial term, this ratio is used to measure both quantitative and qualitative factors. In all possible cases, the qualitative factors should be factored in quantitative terms for easier understand ability and workability.


Projects which have a BCR greater than 1 have more benefits than costs related to the project, thus having more net benefits than costs. Such a project having benefits greater than costs is called as a good investment.

 

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