How Is Residual Income Calculated

question 139

Multiple Choice

How is residual income calculated?

• 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)

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Definitions:

Corporation

A legal entity owned by shareholders, with rights and responsibilities separate from those of its owners, and capable of engaging in transactions, owning assets, and being liable for debts.

Working Capital Management

The process of managing a company's short-term assets and liabilities to ensure it has sufficient liquidity to run its day-to-day operations.

Cash Requirements

Cash requirements refer to the total amount of cash a company needs to satisfy its operational expenses and financial obligations in a given period.

Long-Term Debt

Loans and financial obligations lasting more than one year, used as a means for business financing.