Residual income:
A)is the return on investment (ROI) percentage multiplied by average operating assets.
B)is the net operating income earned above a certain minimum required return on sales.
C)is the net operating income earned above a certain minimum required return on average operating assets.
D)will always be greater than zero.

Question

Quizplus · Accepted Answer

Residual income is the net operating income earned above a certain minimum required return on average operating assets. It measures how effectively a company utilizes its assets to generate profits. Therefore, option C is the correct choice. Options A and B are incorrect because they do not accurately describe residual income. Option D is also incorrect because the residual income can be zero or negative if the net operating income does not cover the required return on assets.

Residual Income