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The Average Annual Profit for an enterprise is the mean profit for a number of years.
In this regards, 'Profits' recognise the accounting practice of allocating depreciation. Though this is a non-cash transaction, it is pertinent in the face of recognising the utility of assets in generating income. Thus it is assumed that for the value of assets used, that value of the asset allocated to depreciation is the value involved in the business activity to generate that income.

A total of these profits for a period of say 5 years is summed, then the mean is derived.
This then becomes the Average Annual Profits for that enterprise.

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