Residual Income Calculator

Defination / Uses

The residual income description is income after subtracting all the equity charges from the account net income, where the equity charges reflects the occasion cost of capital of the equity stockholders.

The account net income is frequently stated after deciding a company's interest charges, which means it takes care of the cost of debt. Still, it doesn't reflect the cost of the equity capital. Hence, from the equity holder's perspective, one can argue that counting net income frequently overstates the returns to the stockholders.

We can break this problem by calculating the residual income, which considers the cost of equity by abating the equity charge from the account net income. In short, the residual income meaning is the return after all capital costs, both debt and equity, are subtracted.