What is Residual Income?
Residual Income A performance metric representing net income minus a charge for the opportunity cost of capital employed; widely used in valuation, corporate performance measurement, and incentive compensation design.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Residual Income” Used in Practice?
Residual income motivates managers to pursue projects that earn returns above the company’s cost of capital, aligning interests with shareholders.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Residual Income?
A performance metric representing net income minus a charge for the opportunity cost of capital employed; widely used in valuation, corporate performance measurement, and incentive compensation design.
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