Residual Income Calculator
Enter net income, equity and the cost of equity to find the profit left after charging for the equity capital used.
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Enter net income, equity and the cost of equity to see residual income.
Worked example
With these example inputs:
- Net income$500,000
- Equity$2,000,000
- Cost of equity10%
Residual income: $300,000
- Equity charge$200,000
Frequently asked questions
How is residual income calculated?
Subtract an equity charge, equity times the cost of equity, from net income. $500,000 less $2,000,000 at 10% leaves $300,000 of residual income.
What does positive residual income mean?
It means the company earned more than the minimum return its shareholders require, creating value above its cost of equity. Negative residual income destroys value.