Residual Income Valuation
Free CFA Level II lesson in Equity Valuation. 15 min read, ~2,270 words.
Residual income = Net income minus equity charge (r x Book value). Positive NI can coexist with negative RI. Intrinsic value = Book value + PV of future RI. Less terminal-value-dependent than DCF. Clean surplus must hold: B(t) = B(t-1) + E(t) - D(t). OCI items violate it, so adjust...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- residual income valuation
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