Both RI and EVA calculate whether a corporate division generated operating income above the target set by the business, but they do so from different perspectives.

Question

Quizplus · Accepted Answer

Both RI (Residual Income) and EVA (Economic Value Added) measure the excess of operating income earned by a division over its cost of capital, but RI is calculated as the difference between the division's operating income and a minimum required return on its net assets, while EVA subtracts the division's total cost of capital from its operating income. Therefore, they have different approaches to determining whether a division has created value above its target.

Both RI and EVA Calculate Whether a Corporate Division Generated