Question

Residual income is ____________.A. the difference between the net income the analyst expects the firm to generate and the required earnings of the firm. B. the difference between the net income the analyst expects the firm to generate and the reported earnings of the firm. C. adjusted net income the firm reports. D. the book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. PreviousNext

Answer 1

Answer:

A. The difference between the net income the analyst expects the firm to generate and the required earnings of the firm.

Explanation:

Residual income measures an organisation's internal corporate performance by looking at the difference between the income geneated by the firm and the required minimum returns. It can be described as the excess of generated income over required earnings for the firm.

For personal Income, residual income represents the income an individual has left after deducting all personal expenses and all debts.

Based on the question, therefore, residual income will be the excess amount after a company's analysts' deduct the required earnings of the company from what the company generates.