Residual Income Is Calculated as

question 126

Multiple Choice

Residual income is calculated as

• A) operating income - (ROI *average operating assets).
• B) operating income/(ROI *average operating assets).
• C) operating income/(minimum rate of return * average operating assets).
• D) operating income -(minimum rate of return * average operating assets).
• E) (minimum rate of return * average operating assets)/operating income.

---

Definitions:

Financial Leverage

Financial leverage refers to the use of borrowed funds to increase the potential return of an investment, amplifying both potential gains and losses.

ROE

Return on Equity, a financial ratio that measures the profitability of a firm relative to shareholders' equity, indicating how efficiently a company uses investments to generate earnings growth.

EPS

Earnings Per Share; a key financial metric that divides a company's profit by the outstanding shares of its common stock.

Equity

The value of an asset after deducting the value of liabilities, representing an owner's interest in a company or property.