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Residual Income Formula

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Residual Income provides a way to assess how well a company is generating returns above its cost of capital. Check FAQs

RI = OI - MRRR \cdot AOA

RI - Residual Income?OI - Operating Income?MRRR - Minimum Required Rate of Return?AOA - Average Operating Assets?

Residual Income Example

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Here is how the Residual Income equation looks like with Values.

Here is how the Residual Income equation looks like with Units.

Here is how the Residual Income equation looks like.

400000 = 420000 - 0.4 \cdot 50000

400000 = 420000 - 0.4 \cdot 50000

400000 = 420000 - 0.4 \cdot 50000

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Residual Income Solution

Follow our step by step solution on how to calculate Residual Income?

FIRST Step Consider the formula

RI = OI - MRRR \cdot AOA

Next Step Substitute values of Variables

∴

RI = 420000 - 0.4 \cdot 50000

Next Step Prepare to Evaluate

∴

RI = 420000 - 0.4 \cdot 50000

LAST Step Evaluate

∴

RI = 400000

Residual Income Formula Elements

Variables

Residual Income

Residual Income provides a way to assess how well a company is generating returns above its cost of capital.

Symbol: RI

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Residual Income

Operating Income

Operating Income is a measure of a company's profitability from its core business operations.

Symbol: OI

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Operating Income

Minimum Required Rate of Return

Minimum Required Rate of Return is the minimum rate of return that an investor or company expects to earn on an investment to compensate for the risk and time value of money.

Symbol: MRRR

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Minimum Required Rate of Return

Average Operating Assets

Average Operating Assets refers to the average value of assets that a company uses in its operating activities over a specific period.

Symbol: AOA

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Average Operating Assets

Other formulas in Asset Management category

Go Amortization of Intangible Assets

AE = \frac{HCIA - RV}{ULA}

Go Net Capital Spending

NCS = ENFA - BNFA + Dep n

Go Internal Growth Rate

IGR = RR \cdot ROA

Go Depreciable Cost of Asset

DC = PC - SV

How to Evaluate Residual Income?

Residual Income evaluator uses Residual Income = Operating Income-Minimum Required Rate of Return*Average Operating Assets to evaluate the Residual Income, The Residual Income is a financial metric used by companies to determine the economic feasibility of a project and decide whether to pursue the project. Residual Income is denoted by RI symbol.

How to evaluate Residual Income using this online evaluator? To use this online evaluator for Residual Income, enter Operating Income (OI), Minimum Required Rate of Return (MRRR) & Average Operating Assets (AOA) and hit the calculate button.

FAQs on Residual Income

What is the formula to find Residual Income?

The formula of Residual Income is expressed as Residual Income = Operating Income-Minimum Required Rate of Return*Average Operating Assets. Here is an example- 400000 = 420000-0.4*50000.

How to calculate Residual Income?

With Operating Income (OI), Minimum Required Rate of Return (MRRR) & Average Operating Assets (AOA) we can find Residual Income using the formula - Residual Income = Operating Income-Minimum Required Rate of Return*Average Operating Assets.

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Residual Income Formula

Residual Income Example

Residual Income Solution

Residual Income Formula Elements

Other formulas in Asset Management category

How to Evaluate Residual Income?

FAQs on Residual Income

Variable Name