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Finance Calc Kit
Business

Residual Income Calculator

Calculate corporate equity residual income, Economic Value Added (EVA), and personal monthly disposable residual income easily.

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Economic residual income

$50,000.00

5.00% excess return over capital cost

Equity charge

$100,000.00

Return on equity (ROE)

15.00%

Net income

$150,000.00

Equity capital

$1,000,000.00

How to read this result

Positive residual income means the business earned more than shareholders require for the equity capital deployed.

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What is residual income?

Residual income measures what remains after subtracting required charges from earnings. In corporate finance, residual income (closely related to Economic Value Added) equals net income minus an equity capital charge based on the cost of equity. In personal finance, residual income is the monthly cash left after living expenses and debt payments.

For a dedicated EVA workflow with operating profit adjustments, see the economic value added calculator. To estimate the cost of equity used in the capital charge, use the CAPM calculator.

Corporate residual income formula

Equity Charge=Equity Capital×Cost of Equity100\text{Equity Charge} = \text{Equity Capital} \times \frac{\text{Cost of Equity}}{100}
Residual Income=Net Income−Equity Charge\text{Residual Income} = \text{Net Income} - \text{Equity Charge}

Positive residual income means the company earned more than shareholders require for the equity deployed. Negative residual income destroys economic value even if accounting net income is positive.

Corporate worked example

With $150,000 net income, $1,000,000 equity capital, and a 10% cost of equity, the equity charge is $100,000. Residual income equals $50,000. Return on equity is 15%, and the residual return rate is 5% above the required hurdle.

Personal disposable residual income

Residual Income=Income−Expenses−Debt Payments\text{Residual Income} = \text{Income} - \text{Expenses} - \text{Debt Payments}

The personal mode also reports debt-to-income (DTI) and a free savings rate (residual income divided by gross monthly income). Lenders often scrutinize DTI when approving mortgages and other installment credit.

Frequently asked questions

How is residual income different from net income?
Net income is an accounting profit after all expenses on the income statement. Corporate residual income additionally charges equity capital at the opportunity cost shareholders demand.
Is residual income the same as EVA?
The concepts are closely related. EVA typically adjusts operating profit for taxes and uses weighted average cost of capital. This calculator uses a simplified net income minus equity charge approach.
What cost of equity should I use?
Many analysts estimate cost of equity with CAPM or build-up methods. Use the hurdle rate your firm or investors actually require rather than a generic market average.
What is a healthy personal DTI?
Many mortgage lenders prefer total DTI below 36% to 43%, though programs vary. Use personal residual income to see how much monthly cash remains after obligations.
Are results stored on a server?
No. All math runs in your browser and URL parameters let you share scenarios.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.