Difference between Residual Income & Return on Investment
Definitions and meanings:
Return on investment:
Return on investment (ROI) is a measure which calculates the efficiency of an
investment by calculating percentage of return earned by that investment.
Residual income:
Residual income (RI) is the amount of income an investment opportunity generates
above the minimum level of rate of return.
Formulas and example:
The formulas for the calculation of return on investment (ROI) and Residual income
(RI) are given below:
Return on investment = (Profits or return/Total Long-term investment) × 100
Residual income = Net operating Income – (Average operating assets × Minimum rate
of return)