Residual Income
From Wikireedia
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!!!
