{
  "id": "residual-income",
  "version": "27312cec2a06",
  "status": "published",
  "name": "Residual Income Calculator",
  "question": "What is the residual income?",
  "summary": "Computes the residual income of a division or project: its operating income minus the minimum required return on its invested capital, with the capital charge and ROI.",
  "category": "finance",
  "subcategory": "business",
  "url": "https://www.acalculator.org/finance/residual-income-calculator",
  "markdown": "https://www.acalculator.org/finance/residual-income-calculator.md",
  "kind": "function",
  "method": "RI = operating income − invested capital × minimum required rate of return; ROI = operating income ÷ invested capital.",
  "assumptions": [
    "Income and capital are measured the same way your company measures them for its divisions (for example net book value).",
    "The average capital is (start + end) ÷ 2 for the year.",
    "Arithmetic is exact on the typed decimals; money rounds once to the cent and the ROI to 2 decimals."
  ],
  "inputs": {
    "$schema": "https://json-schema.org/draft/2020-12/schema",
    "type": "object",
    "properties": {
      "income": {
        "title": "Operating income (profit)",
        "description": "The profit of the division or project for the year. Negative for a loss.",
        "type": "number",
        "x-unit": "USD",
        "minimum": -1000000000000000,
        "maximum": 1000000000000000
      },
      "basis": {
        "title": "Invested capital",
        "description": "Type one amount of capital, or the amounts at the start and the end of the year to use their average.",
        "type": "string",
        "enum": [
          "amount",
          "average"
        ]
      },
      "capital": {
        "title": "Invested capital (operating assets)",
        "description": "The assets the division or project uses, as your company measures them (often at net book value).",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 1000000000000000
      },
      "start": {
        "title": "Capital at the start of the year",
        "description": "The operating assets on the first day of the year.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 1000000000000000
      },
      "end": {
        "title": "Capital at the end of the year",
        "description": "The operating assets on the last day of the year.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 1000000000000000
      },
      "rate": {
        "title": "Minimum required rate of return",
        "description": "The lowest yearly return the company accepts on the capital it invests.",
        "type": "number",
        "x-unit": "percent",
        "minimum": 0,
        "maximum": 1000
      }
    }
  },
  "outputs": {
    "ri": {
      "label": "Residual income",
      "description": "Operating income − invested capital × minimum required rate of return.",
      "format": "money"
    },
    "charge": {
      "label": "Capital charge (required return)",
      "description": "Invested capital × minimum required rate of return.",
      "format": "money"
    },
    "capitalUsed": {
      "label": "Invested capital used",
      "description": "The capital the charge is taken on.",
      "format": "money"
    },
    "roi": {
      "label": "Return on investment (ROI)",
      "description": "Operating income ÷ invested capital × 100.",
      "format": "percent"
    }
  },
  "defaultAnswer": {
    "inputs": {
      "income": 7000000,
      "basis": "amount",
      "capital": 10200000,
      "start": 10000000,
      "end": 10400000,
      "rate": 15
    },
    "outputs": {
      "ri": 5470000,
      "charge": 1530000,
      "capitalUsed": 10200000,
      "roi": 68.62745098039215
    },
    "text": "Earning $7,000,000.00 on $10,200,000.00 of capital at a 15% required return leaves a residual income of $5,470,000.00."
  },
  "examples": [
    {
      "given": {
        "income": 250000,
        "basis": "amount",
        "capital": 1500000,
        "rate": 18
      },
      "expect": {
        "ri": -20000,
        "charge": 270000,
        "roi": 16.666666666666668
      },
      "source": "OpenStax, Principles of Accounting, Volume 2: Managerial Accounting, 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added (RI = profit − invested capital × minimum required rate of return; average capital = (start + end) ÷ 2). https://openstax.org/books/principles-managerial-accounting/pages/12-3-evaluate-an-operating-segment-or-a-project-using-return-on-investment-residual-income-and-economic-value-added: $250,000 − ($1,500,000 × 0.18) = −$20,000"
    },
    {
      "given": {
        "income": 7000000,
        "basis": "average",
        "start": 10000000,
        "end": 10400000,
        "rate": 15
      },
      "expect": {
        "ri": 5470000,
        "capitalUsed": 10200000,
        "roi": 68.62745098039215
      },
      "source": "OpenStax, Principles of Accounting, Volume 2: Managerial Accounting, 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added (RI = profit − invested capital × minimum required rate of return; average capital = (start + end) ÷ 2). https://openstax.org/books/principles-managerial-accounting/pages/12-3-evaluate-an-operating-segment-or-a-project-using-return-on-investment-residual-income-and-economic-value-added: $7,000,000 − ($10,200,000 × 0.15) = $5,470,000; ROI 69% in OpenStax (7,000,000 ÷ 10,200,000)"
    },
    {
      "given": {
        "income": 8000000,
        "basis": "average",
        "start": 12000000,
        "end": 12400000,
        "rate": 15
      },
      "expect": {
        "ri": 6170000,
        "capitalUsed": 12200000,
        "roi": 65.57377049180327
      },
      "source": "OpenStax, Principles of Accounting, Volume 2: Managerial Accounting, 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added (RI = profit − invested capital × minimum required rate of return; average capital = (start + end) ÷ 2). https://openstax.org/books/principles-managerial-accounting/pages/12-3-evaluate-an-operating-segment-or-a-project-using-return-on-investment-residual-income-and-economic-value-added: $8,000,000 − ($12,200,000 × 0.15) = $6,170,000; ROI 66% in OpenStax"
    }
  ],
  "sources": [
    "OpenStax, Principles of Accounting, Volume 2: Managerial Accounting, 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added: RI = project profit − project invested capital × minimum required rate of return; average capital assets = (start + end) ÷ 2; the donut machine (−$20,000), SkyHigh Superball ($5,470,000 and $6,170,000) and EVA examples. https://openstax.org/books/principles-managerial-accounting/pages/12-3-evaluate-an-operating-segment-or-a-project-using-return-on-investment-residual-income-and-economic-value-added (retrieved 2026-10-18)"
  ],
  "related": [
    "roi",
    "wacc",
    "npv",
    "ebitda"
  ],
  "changelog": []
}