# Residual Income Calculator

URL: https://speedycalculator.com/calculators/finance/residual-income/
Last updated: 2026-10-25

> The residual income calculator works out the income a company earns above the cost of the equity capital it uses – net income minus an equity charge – a measure of value creation for shareholders.

## Inputs

- Equity capital
- Cost of equity (%)
- Net income

## Results

- Equity charge
- Residual income
- Return on equity

## Formula

```
Equity charge = equity capital × cost of equity
Residual income = net income − equity charge
```

## Explanation

Residual income recognises that equity isn't free: shareholders expect a return. Positive residual income means management created value beyond that expectation. The residual income model values a company as book value plus the present value of future residual income.

### How to use the Residual Income Calculator

- **Equity capital**
- **Cost of equity**
- **Net income**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter equity capital (book value), the cost of equity and net income.

### Tips

- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.

### Common mistakes to avoid

- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.

### Inputs explained

FieldWhat to enterEquity capitalAmount in your currencyCost of equityIn %Net incomeAmount in your currency

### What each result means

- **Equity charge** = [Equity capital]×[Cost of equity]÷100
- **Residual income** = [Net income] - [Equity charge]
- **Return on equity** = [Net income]÷[Equity capital]×100

### Example values

How the main result changes when **Equity capital** changes and everything else stays at the example values above:

Equity capitalResidual income25,000,0004,500,00037,500,0003,250,00050,000,0002,000,00062,500,000750,00075,000,000-500,000100,000,000-3,000,000

## Worked example

Inputs — Equity capital: $50,000,000; Cost of equity: 10 %; Net income: $7,000,000.

Results — Equity charge = $5,000,000.00; **Residual income = $2,000,000.00**; Return on equity = 14 %.

## FAQ

**What is residual income?**
Net income minus a charge for the cost of equity.

**What does positive residual income mean?**
The company earned more than shareholders required.

**How is it different from EVA?**
EVA uses all capital and NOPAT; residual income uses equity and net income.

**What formula does the Residual Income Calculator use?**
Equity charge = equity capital × cost of equity.


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)