residual income

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The net income that a subsidiary undertaking or division of an organization generates after being charged a percentage return for the book value of the net assets or resources deemed to be under its control. The headquarters or holding company of the organization will require the subsidiary or division to maximize its profits after the charge for the use of those assets. This approach is very similar to the Economic Value Added technique. Residual income is often compared with return on capital employed when measuring the performance of divisions.

Subjects: Accounting.

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