The arithmetic mean is often known simply as the mean. It is an average, a measure of the centre of a set of data. The arithmetic mean is calculated by adding up all the values and dividing the sum by the total number of values. Arithmetic mean or simply the mean of a variable is defined as the sum of the observations divided by the number of observations.

- It is rigidly defined.
- It is easy to understand and easy to calculate.
- If the number of items is sufficiently large, it is more accurate and more reliable.
- It is a calculated value and is not based on its position in the series.
- It is possible to calculate even if some of the details of the data are lacking.
- Of all averages, it is affected least by fluctuations of sampling.
- It provides a good basis for comparison.

- It cannot be obtained by inspection nor located through a frequency graph.
- It cannot be in the study of qualitative phenomena not capable of numerical measurement i.e.Intelligence, beauty, honesty etc.
- It can ignore any single item only at the risk of losing its accuracy.
- It is affected very much by extreme values.
- It cannot be calculated for open-end classes.
- It may lead to fallacious conclusions, if the details of the data from which it is computed are not given.

The arithmetic mean is the simplest calculation to determine the average return. The average return on an asset, observed over a long period of time, is often used as the expected return for future years. Although the future return is unknown and cannot be predicted with great accuracy, the historical average return is as good a guess as any of what the return will be in the future.