- residual income
- = residual returnThe net income that a subsidiary undertaking or division of an organization generates after being charged a percentage return for the book value of the net assets or resources deemed to be under its control. The residual income approach by the headquarters or holding company of an organization is to require the subsidiary or division to maximize its profits after the charge for the use of those assets. This approach is very similar to the Economic Value Added technique.exampleA company has two divisions. The managers of Division X have to decide whether or not to invest £1,000,000 in a project with a profit before interest and tax of £200,000. The managers of Division Y have a similar decision: whether to invest £1,000,000 in a project with a profit before interest and tax of £100,000.The calculation indicates that the residual income of Division X will increase if the project is accepted. Managers should therefore accept the investment. By contrast, the residual income of Division Y will decrease if the project is accepted. Managers should therefore reject the investment.Note that it is possible to have a different cost of capital percentage for each division. For example, if investments in Division Y are seen as having a higher risk than investments in Division X, the company can increase the cost of capital charge for Division Y. This is one reason why managers may choose residual income rather than return on capital employed ROCE when measuring the performance of divisions. Recent surveys suggest that even though residual income can be regarded as theoretically superior to ROCE, the latter is preferred by managers.
Accounting dictionary. 2014.
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residual income — UK US noun [C or U] FINANCE, ACCOUNTING ► income that a person, company, or organization has left after they have paid taxes, debts, etc.: »Pension payments reduce residual income for tax purposes. ► (also residuals [plural]) money that a writer… … Financial and business terms
residual income — residual return The net income that a subsidiary undertaking or division of an organization generates after being charged a percentage return for the book value of the net assets or resources deemed to be under its control. The headquarters or… … Big dictionary of business and management
Residual Income — The amount of income that an individual has after all personal debts, including the mortgage, have been paid. This calculation is usually made on a monthly basis, after the monthly bills and debts are paid. Also, when a mortgage has been paid off … Investment dictionary
Остаточная прибыль (RESIDUAL INCOME) — Средство измерения результатов деятельности центра инвестиций, которое фокусируется на ответственности за получение прибыли и на эффективности финансового управления, проводимого руководителем центра инвестиций. Остаточная прибыль обычно… … Словарь терминов по управленческому учету
residual return — residual income … Accounting dictionary
residual — the pre agreed estimated value at the end of a leasing period of an item subject to a leasing agreement. Glossary of Business Terms (1) For sequential pay CMO structures, a residual tranche is the CMO tranche that receives the excess cash flow… … Financial and business terms
Residual Interest Bonds - RIBS — A type of inverse floating rate bond created by dividing the income from a municipal bond into two portions. The municipal bondholder will create two new securities: a primary direct floating rate bond and a residual inverse floating rate bond.… … Investment dictionary
income — money that is being earned by the business. Glossary of Business Terms * * * income in‧come [ˈɪŋkʌm, ˈɪn ] noun 1. [countable, uncountable] money that you earn from your job or that you receive from investments: • The family pays more than 50% of … Financial and business terms
residual — re|sid|u|al [rıˈzıdʒuəl] adj [only before noun] formal remaining after a process, event etc is finished ▪ the residual effects of drug treatment residual income (=the money left from what you earn after you have paid your taxes) … Dictionary of contemporary English
residual — adjective (only before noun) formal remaining after a process, event etc is finished: There was still some residual unrest after the rebellion had been crushed. | residual income (=the money left from what you earn after you have paid your taxes) … Longman dictionary of contemporary English