computingAbsRI: Calculates Residual Income using given values of Earnings Per...

In stockAnalyst: Equity Valuation using Methods of Fundamental Analysis

Calculates Residual Income using given values of Earnings Per Share (EPS) and beginning Book Values Per Share(bgnBVPS) for a specified number of years.

Description

Calculates Residual Income using given values of Earnings Per Share (EPS) and beginning Book Values Per Share(bgnBVPS) for a specified number of years.

Usage

computingAbsRI(EBIT, debt, equity, r, rd, t)

Arguments

EBIT	A number vector.
debt	A number vector.
equity	A number vector.
r	A number.
rd	A number.
t	A number.

Details

Residual Income is computed in three steps. Here, Step 1 is to compute preTaxIncome as (EBIT minus rd multiplied with debt). Step 2 is to get netIncome as (preTaxIncome minus (t multiplied with preTaxIncome) ), and finally step 3 is to obtain the Residual Income (RI) as netIncome minus (r times equity). According to information provided by Jerald E. Pinto (2020), the method computingAbsoluteRI is developed to compute absolute value of Residual Income. Here, EBIT is a number vector that hold values of EBIT in millions of dollars, debt is a number vector that has dollar value of debt (expressed in millions of dollars), equity is a number vector that holds dollar value of equity (expressed in millions of dollars), r required rate of return on equity (expressed in decimal terms), rd is cost of debt (expressed in decimal terms), and t is rate of taxes. Output gives dollar value of Residual Income (expressed in millions of dollars).

Value

Input values to six arguments bgnBVPS RI, r, , times.

Author(s)

MaheshP Kumar, [e-mail]

References

Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). Wiley Professional Development (P&T). https://bookshelf.vitalsource.com/books/9781119628194

Examples

computingAbsRI(EBIT=c(0.5,1.5,2.25),debt=c(1,2.2,2.5),equity=c(1,2.2,2.5), r=0.12,rd=0.07,t=0.30)

stockAnalyst documentation built on Sept. 13, 2022, 5:07 p.m.