Valuation
Residual Income Model
Definition
What is Residual Income Model?
A model valuing equity as book value plus the present value of future profit above the required return on equity.
Example in practice
How This Looks in Practice
A bank's value reflects book equity and expected excess returns.
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Related Terms
Valuation
Market Value
The price at which an asset could trade in the market at a given time.
ValuationIntrinsic Value
An estimate of an asset's underlying economic worth based on expected cash flows, assets, or earning power.
ValuationFair Value
An estimate of an asset's appropriate value under specified assumptions or accounting standards.
Capital BudgetingNet Present Value
Present value of expected cash inflows minus present value of expected cash outflows.