Residual Income (RI) Calculator

Formula

The formula to calculate the Residual Income (RI) is:

\[ RI = OI - (mrr \times OA) \]

Where:

$ RI $ is the Residual Income
$ OI $ is the Operating Income
$ mrr $ is the Minimum Required Return Rate
$ OA $ is the Operating Assets

What is Residual Income?

Residual income is defined as the total income received or leftover after all debts and obligations have been paid. In the context of the formula above, it explores the residual income of a company with respect to the performance of its capital investment.

Example Calculation

Let's consider an example:

Operating Income (OI): $200,000
Minimum Required Return Rate (mrr): 10%
Operating Assets (OA): $1,000,000

Using the formula to calculate the Residual Income:

\[ RI = 200000 - (0.10 \times 1000000) = 200000 - 100000 = 100000 \text{ dollars} \]

This means that the residual income for this scenario is $100,000.