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Residual Income

Some firms use this KPI to overcome some of the incentive deficiencies of ROI, such as underinvesting. Residual income measures divisional performance by subtracting the opportunity cost of capital employed from division profits.

Variables: Opportunity costs of capital employed, division profits

Calculation: Division profits - Opportunity cost

Measured as: Value ($/€),

Interpretation of results: Lower is better

  

Posted in All sectors, Finance & Control, Financial, KPI

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