What is residual income in this calculator?

Residual income is the net income left after subtracting a charge for the cost of equity capital. It measures whether a company is earning more than the minimum required return on its equity.

How is the equity charge calculated?

The equity charge is calculated by multiplying the equity amount by the required return (as a percentage). For example, if equity is $1,000,000 and required return is 10%, the charge is $100,000.

What does a negative residual income indicate?

A negative residual income means the company's net income is less than the equity charge, indicating it is not generating enough profit to cover the required return on equity.

Finance

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Residual Income Calculator.

Calculate residual income after a capital charge.

Cette calculatrice n'est pas encore entièrement traduite ; une partie du texte s'affiche en anglais.

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02 / RÉPONSE

Net income

Equity

Required return

Residual income

20 000,00 $US

Equity charge

30 000,00 $US

Comment utiliser

Residual income = net income − (equity × required return). Required return and accounting definitions are supplied by you; this is not an investment recommendation.

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Cite this calculator

Canonical URL: https://mathify.one/fr/finance/residual-income

Cite as: Mathify. (n.d.). Calculatrice: Residual Income. https://mathify.one/fr/finance/residual-income

Use Cases

Evaluate company performance

Assess whether a company is creating value beyond the cost of equity capital. Useful for investors and managers to gauge profitability relative to equity risk.

Example: A company with net income of $500,000, equity of $2,000,000, and required return of 12% has residual income of $260,000.

Compare investment opportunities

Compare residual income across different projects or companies to identify which ones generate excess returns over the required return.

Example: Compare two projects with different equity bases and required returns to see which yields higher residual income.

Frequently Asked Questions

What is residual income in this calculator?: Residual income is the net income left after subtracting a charge for the cost of equity capital. It measures whether a company is earning more than the minimum required return on its equity.
How is the equity charge calculated?: The equity charge is calculated by multiplying the equity amount by the required return (as a percentage). For example, if equity is $1,000,000 and required return is 10%, the charge is $100,000.
What does a negative residual income indicate?: A negative residual income means the company's net income is less than the equity charge, indicating it is not generating enough profit to cover the required return on equity.

Tips & Common Mistakes

Tips

Ensure net income and equity are in the same currency and time period (e.g., annual figures).
Use a required return that reflects the risk of the equity, such as the cost of equity from CAPM.
Residual income can be used for valuation, but it's best combined with other metrics like ROE and growth.
Double-check that the required return is entered as a percentage (e.g., 10 for 10%), not as a decimal.

Common Mistakes to Avoid

Entering the required return as a decimal (0.10) instead of a percentage (10), leading to an incorrect equity charge.
Using net income from a different period than equity, causing mismatched calculations.
Forgetting that residual income is not the same as economic value added (EVA) if adjustments are needed for accounting distortions.

Last updated: August 13, 2026