Residual Income: Difference between revisions

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Latest revision as of 06:29, 13 October 2012

Contribution - Cost of Capital = RI

e.g. The controllable contribution of a project is 2 milllion the investment is 1.5m The RI is 0.5. the project should be taken

  • its a historic calculation
  • its an absolute measure
  • difficult to se as an interco comparison
  • easier to use RIO is concert with other comparable measures
  • ROI always looks better if you age the assets
  • influenced by Accounting Rules

EVA = RI with accounting adjustments

Examples!!!