Shareholders are said to have a residual claim on the firm's assets.What does this mean?

Question

Quizplus · Accepted Answer

Shareholders' residual claim on the firm's assets means that they only receive a payoff from the firm after all other parties, such as creditors and bondholders, have been paid. In other words, shareholders are at the bottom of the financial pecking order, and their returns are dependent on the firm's ability to generate profits after meeting all other obligations. This is why they are said to have a residual claim, as their returns are based on what is left over (if anything) after all other parties have been satisfied.

Shareholders Are Said to Have a Residual Claim on the Firm's