Residual Income Research Articles

A novel approach to assessing food insecurity for small geographic areas using household living budgets

AbstractThe USDA Economic Research Service has monitored food insecurity at national and state levels since 1995 using the Current Population Survey Food Security Supplement. But if a food insecurity measure is to inform action and target interventions, it must be constructed for smaller geographic levels that consider geographic price differences. This article constructs a novel measure of food insecurity using an alternative approach based on financial needs of households, known as the household living budget (HLB). The HLB is defined as the income required to satisfy a household's essential needs, enabling it to maintain a modest yet sufficient standard of living while covering federal and state income taxes. The HLB is constructed at the census tract level and incorporates three key determinants of food insecurity: household size and composition, household income, and food costs. We demonstrate how the HLB along with publicly available data can be used to construct a food insecurity measure using a residual income approach to assess if households are able to afford paying for food expenditures and assess the qualification thresholds of the Supplemental Nutrition Assistance Program (SNAP). Food insecurity estimates are obtained for households in Washington, D.C. and benchmarked to regional results provided by a survey sponsored by the Capital Area Foodbank.

Analysis of Earnings Quality and Enterprise Valuation of Microsoft by Earnings Quality and Residual Income Model

Artificial intelligence has had a remarkable influence in recent years and has developed many revolutionary solutions in many industries. OpenAI’s ChatGPT is one of the most popular products in this trend. As the largest stockholder of OpenAI, Microsoft has committed itself to integrating artificial intelligence into its primary products, like Microsoft Office and Azure. Although Microsoft experienced a continuous slump in stock in 2022, Microsoft’s current stock price has broken through $400 per share. This paper aims to conduct a financial analysis and forecast Microsoft’s future growth to figure out Microsoft’s intrinsic value. This article uses earnings quality analysis and residual income model to evaluate Microsoft’s financial performance and conduct valuation. Microsoft’s Cash Conversion Cycle has become negative since 2021, so Microsoft can reinvest the cash it receives from sales before using it to pay suppliers. The present value of the continuing value in the Residual Income Model indicates that Microsoft is undervalued compared to the current stock price. Economic conditions and the global supply chain will also influence investors’ expectations, except for quantitative factors. Therefore, Microsoft's stock price fluctuates and does not exceed the forecasted price. This article offers some insights on Microsoft and relevant industry valuation analysis.

Who should provide a trade-in service under the online agency-selling mode?

In real world practice, trade-in programs are offered by either a manufacturer or an e-commerce platform. Parties that offer a trade-in service are faced with a trade-off between trade-in rebates and the residual income. By adopting the game theory, this paper explored the selection of trade-in provider with respect to a manufacturer and an e-commerce platform. The results show that in some cases, all trade-in models generated higher manufacturing costs than models with no trade-in program. However, in other cases not all trade-in models can cope with manufacturing costs that are higher than those associated with models that have no trade-in program. Furthermore, both above two firms will offer the trade-ins when profits which they have obtained satisfied a certain condition. We also identified an interesting phenomenon whereby the manufacturer decided whether it wanted to delegate the trade-ins to the e-commerce platform or provide it jointly. The e-commerce platform can decide whether it wants to accept the delegation or jointly offer it. This study also obtain that trade-in models makes customers get more surplus and can produce greater environmental benefits. Moreover, both the customer surplus and the environmental benefits in delegated trade-in model is the same that in jointly trade-in model.

Towards better understanding the economic and environmental sustainability of alternative agricultural cropping production systems through integrated modelling

We explore and develop an integrated model to enhance understanding and evaluation of the economic and environmental sustainability performance of alternative agricultural cropping production systems. More specifically, our developed Environmentally Sustainable Residual Income Decomposition Modelling (ESRIDM) integrates accounting decomposition analysis, Water and Economic Sustainability Performance Measurement (WESM), system thinking, modular thinking, Environmentally Sustainable Residual Income (ESRI) theory, into a holistic modelling system influenced by Life Cycle Assessment (LCA) and Life Cycle Costing (LCC) approaches.The ESRIDM is theorised and applied in the context of nitrogen management in Australian Cotton production through a detailed case study and comparative analysis of three nitrogen fertiliser options. We find the ESRIDM is able to: (i) provide an overall assessment of the economic and environmental sustainability performance of each scenario modelled; (ii) increase the transparency of the production system to enable the identification of key issues which influence the likely suitability of each scenario; (iii) enable an analysis of probable outcomes under various alternatives; (iv) evaluate the feasibility of regulatory option modelled. While this paper offers a novel perspective to a specific context, ESRIDM is designed to be adapted to a variety of contexts with a view to contributing to the evolution of more sustainable systems of production more generally.

Stock Valuation In Retail Trade Companies Listed On The Idx: Residual Income And Dividend Discount Model

Stock Valuation In Retail Trade Companies Listed On The Idx: Residual Income And Dividend Discount Model

Examining the impact of market uncertainty on earnings forecasts: an empirical study from Egypt

PurposeThis paper aims to conduct a comparative analysis of the impact of market uncertainty on the degree of accuracy and bias of analysts' earnings forecasts versus four model-based earnings forecasts.Design/methodology/approachThe study employs panel regression analysis on a sample of Egyptian listed companies from 2005 to 2022 to examine the impact of market uncertainty on the accuracy and bias of each type of earnings forecast.FindingsThe empirical analysis reveals that market uncertainty significantly affects analysts’ earnings forecast accuracy and bias, while model-based earnings forecasts are less affected. Furthermore, the Earnings Persistence and Residual Income model-based earnings were found to be superior in terms of exhibiting the least susceptibility to the impact of market uncertainty on their forecast accuracy and biasness levels, respectively.Practical implicationsThe findings have important implications for stakeholders within the financial realm, including investors, financial analysts, corporate executives and portfolio managers. They emphasize the importance of considering market uncertainty when formulating earnings forecasts, while concurrently highlighting the potential benefits of using alternative forecasting methods.Originality/valueTo our knowledge, the influence of market uncertainty on analysts' earnings forecast accuracy and bias in the MENA region, particularly in the Egyptian market, remains unexplored in existing research. Additionally, this paper contributes to the existing literature by pinpointing the forecasting method, specifically distinguishing between analysts-based and model-based approaches, whose predictive quality is less adversely impacted by market uncertainty in an emerging market.

Valuation of CATL Based on FCFF, Residual Income and Relative Valuation Model

Valuation of CATL Based on FCFF, Residual Income and Relative Valuation Model

So sánh tính đáng tin cậy của các ước tính giá trị nội tại tạo ra từ ba mô hình định giá dòng tiền và mô hình bội số

Different equity valuation models in theory provide identical estimates of equity intrinsic values if they are implemented with consistent assumptions. In practice, it is not unusual to obtain different value estimates from different models. Prior research on the comparison between multiples-based valuation model and flowsbased valuation models are quite limited. This research contributes to the literature by comparing the accuracy and reliability of three flows-based valuation models (discount dividend model, discounted free cash flow model, residual income valuation model) and multiples-based valuation model using one-year forward forecasted earning (PE1). For the analysis, all models are tested for bias, accuracy and explainability using t-tests, Wilcoxon tests and OLS regressions with a large sample of 40.547 observations from U.S public firms during the period from 2010 to 2020. Results show that PE1 value estimates are more accurate and reliable than that of flows-based models; and among flows-based models, residual income valuation model performs best. This research provides evidence for the performance and usage of such models to support sell-side equity analysts while making decisions of which model to use.

Wanprestasi oleh Koperasi Simpan Pinjam: Bagaimana Dampak Hukumnya?

The development of the national economy and the changes that occur in the business environment, including the savings and loan cooperative unit, which is directed to always encourage and play an active role in increasing the income of its members in order to be able to overcome existing social inequality. Cooperatives are a joint business entity that struggles in the economic field by taking the right and steady path with the aim of freeing itself from the economic difficulties generally suffered by its members. However, in reality, this cooperative has not been maximized in controlling credit so that the ability to generate Residual Income (SHU) is still less effective and must enter the realm of court because of defaulting on its customers. Therefore, this research will analyze legal protection in the event of default by the company in this context is the Cooperative. This research is normative (legal) research. The results of this study conclude that the Cooperative Law does not specifically mention legal protection for customer funds while for customers the protection is seen in article 7 and article 8 of Government Regulation Number 33 of 1998 concerning Participation Capital in Cooperatives and the protection of customers is not regulated with certainty so that regulations are needed to resolve defaults committed by business actors of Savings and Loan Cooperatives.

Mutual fund value creation: Insights from the residual income model

Inspired by the residual income model used to assess firms’ value creation in the accounting field, we provide a new estimation approach to infer a fund's skills, value creation, and whether the value created by funds can predict future performance. Using a sample of 2069 active equity funds in China from 2011 to 2022, as predicted by this model, we find that the residual earnings of funds, which represent the value created through fund trading activities, are persistent. Additionally, we observe a strong and positive relationship between residual earnings and semi-year-ahead mutual fund abnormal returns. Specifically, the top quintile portfolio based on residual earnings outperforms the bottom quintile by 2.16 % abnormal returns per year. Furthermore, we note that Chinese mutual funds with higher residual earnings tend to be younger, smaller, and have substantial turnover. These findings are valuable for fund investors seeking to identify high-value funds.

Valuation effect of ESG and its impact on capital structure: Evidence from Europe

In this study, we examine the valuation effect of ESG performance using a sample of 895 European companies. The misvaluation of the company is determined by the ratio of its market price to its true value. A true value calculation is based on two measures: first, on the analysts' forecasted price, and second, on residual income. We find that improvements in ESG profiles increase market prices in relation to their true value. An analysis of overvalued and undervalued stocks separately revealed that ESG performance further enhances the existing level of overvaluation. Conversely, it restores undervalued stocks to their true value for residual income measures of misvaluation. Alternatively, mispricing measured by analysts' forecasted price is significant only for undervalued stocks and the entire sample. Our analysis suggests that information asymmetry and market sentiment play a moderating role in the ESG-misvaluation nexus, suggesting that ESG is a friction to market efficiency. ESG-related misvaluations further impact capital structure through market timing practices, and the increased stability of CSR can be attributed to a marginal increase in equity issuance. We attribute this valuation effect to the demand effect associated with ESG investments. The findings are robust to alternative measures of estimation.

Measuring Housing Affordability in the Philippines

This study evaluates housing affordability using other methods beyond the standard 30 percent income benchmark. By employing the Housing Affordability Index, which considers median family income and average housing prices, the authors find that most Filipino households are income-constrained in purchasing homes. Using the residual income method alongside the 30 percent income standard reveals that the latter overestimates affordability for poorer households, with housing stress particularly evident among low-income groups. The study highlights that socialized and economic housing projects are increasingly situated on the urban fringes, limiting housing options for low- and middle-income households in cities. With residential prices outpacing income growth, the government faces two key objectives: improving housing conditions for poor and vulnerable households and curbing speculative increases in property prices. Proposed solutions include innovative housing interventions and regulatory measures to control property market speculation and ensure affordability.

How To Measure The Economic Return Of Education

This research aims to explain the different ways to measure the economic return from education by comparing individual and social incomes with the educational levels of individuals. There are many methods that can be used to measure the economic return from education, the most important of which are the simple correlation method, the residual income method, and the direct rate of return method for education. The descriptive analytical approach was used to measure the economic return from education and to analyze the return and cost of education. There are many studies that have attempted to measure the economic return from education with the aim of determining the economic value of education represented by the income or wage that the educated individual receives, is this income primarily due to education or are there other factors that affect income generation. Previous studies in measuring the economic return from education have reached important results, a higher level of education leads to increased productivity and higher income. Through analyzing the return and cost of education, the economic return from education is greater than the expenditure on it, and its investment return may exceed many other economic projects. Education also has a social return, both for individuals and society.

실물옵션을 활용한 Olhson 모형 가치평가에 관한 연구

This study newly suggests investor’s psychological expectation values as ‘other information’ not yet clearly identified in the Ohlson model. These values are calculated through real option valuation. A total of 9,791 annual corporate stock prices and financial statements are investigated for KOSDAQ companies from 2011 to 2021. According to the classification criteria of the Korea Exchange, the entire sample was classified into a total of 8 panels: bluechip, midsize, venture, and technology companies, and each further classified into two sub-groups based on their respective residual income signs. We empirically find that the real option value, assessing investors’ expectations for future profits, significantly contribute to explaining stock values along with the book value per share and residual income per share comprising the established Ohlson model. In particular, for companies with negative residual incomes, the real option value demonstrates a higher explanatory power for stock prices compared to those with positive earnings. Furthermore, robustness test shows that the real option value’s explanatory power for stock prices remains significant even when accounting for previously recognized factors such as cash dividends per share, market price to book value ratio, total debt ratio, systematic risk, and market index.

Modeling the Impact of Accounting Conservatism on Information Behaviour in Equity Valuation Based on PLS-SEM

Based on residual income valuation models, this study used PLS-SEM with a formative approach to investigate the moderating effects of conservative policies on the relation between accounting information of the current and lagged periods with the equity value of companies listed on the Tehran Stock Exchange. The sample consisted of 149 companies from 2012 to 2019. The moderating effect of conditional / unconditional accounting conservatism on the relation between current/lagged accounting information and equity value is insignificant at the 10% level. In contrast, conditional conservatism has a significant relation with current/lagged accounting information, current/lagged market information, and equity values. Unconditional conservatism has significant relation with current/lagged accounting information, lagged market information, and equity values. Unconditional conservatism, however, has no significant relation with the current market information. Referring to Ohlson's vision (1995) on the expected long-term convergence between book value and market equity value, this paper's findings show that the current/lagged book value constitutes the structure of linear dynamics used in the residual income valuation model; therefore, the dynamics in residual income evolve on the dynamics of book value and market equity value.

The Unique Strategy in Digital Cooperatives to Increase Benefit for Members

The focus of this research is to analyze the uniqueness of the strategy in the cooperative business to increase profits for its members. This research is qualitative and descriptive. This research was conducted on 10 healthy cooperatives that have used digital applications in their daily operations registered in department of cooperatives and SMEs. The purpose of cooperatives is to prosper members and provide benefits either directly or indirectly. Some of the cooperative business uniqueness, namely: open and voluntary membership, democratic management system and the distribution of residual income is carried out fairly according to the business services of each member.From the results of study, the obstacles that occured in the implementation of digital cooperatives were: low capital provided by members, the lack of technology understanding in human resources, weak soft and hard skills, the existence of strong competition with other businesses, low interest in young people towards cooperative business, the low quality of the cooperative business planning.Revitalization is urgently needed so that cooperatives do not get worse. The authors suggested that cooperatives needed to develop the right strategy in order to survive in the storm of economic competition. The governmenthad to provide financial assistance for human resource development and provide training for cooperative employees. In addition, it is necessary to revamp the digital business comprehension for young people as new generation so that they can focus more on developing cooperative businesses for giving nation economic contribution.

Bankruptcy Risk in Discounted Cash Flow Equity Valuation

We investigate the importance of bankruptcy risk in discounted cash flow (DCF) equity valuation. Our analyses first show how bankruptcy risk is incorporated in DCF valuation, where investment risk is captured by cash flow certainty equivalents. Within this general setting, we find that bankruptcy risk can be captured by discounting factors incorporating period-specific bankruptcy probabilities, allowing the numerators in a DCF valuation model to follow a binary random walk. Elaborating a model of this kind, we assess the value of the equity holders’ limited liability right (the equity holders’ right to hand over the firm to its creditors if bankruptcy occurs). Two valuation models commonly used in academic research and professional practice—the Dividend Discount Model (DDM) and the Residual Income Valuation (RIV) model—are addressed specifically. Our analyses show that bankruptcy probabilities are important for the estimation of the value drivers in both models. Even if bankruptcy probabilities are as low as 0.02, equity values might be severely exaggerated if bankruptcy risk is ignored in DDM or RIV. In particular, this holds for firms expected to have high future growth (conditioned on firm survival). For the RIV model to properly capture bankruptcy risk, we identify “bankruptcy event accounting principles” and an additional term that must be included in the model. We also show that bankruptcy risk under certain conditions can be handled through a specific calibration of the discounting rate/-s in all DCF models, allowing the value drivers—i.e., future dividends or residual income—to be forecasted conditioned on firm survival.

The value relevance of EBITDA and book values: Evidence from the Johannesburg Stock Exchange

Orientation: This paper stems from Ohlson’s valuation framework, where residual income as a variable was substituted by the non-Generally Accepted Accounting Practices (GAAP) measure of earnings before interest, taxes, depreciation and amortisation (EBITDA).Research purpose: The primary purpose was to determine whether EBITDA, together with the book value of equity (BV), could be shown to be value relevant by means of an intrinsic equity evaluation model. Secondary hereto was to focus on the value relevance of the residual between EBITDA and traditional bottom-line earnings, namely interest, taxes, depreciation and amortisation (ITDA).Motivation for the study: The concern is that the current evidence value relevance of EBITDA offered in the literature has been premised on relative valuation approaches, meaning they are primarily anecdotal.Research approach/design and method: Cross-sectional ordinary least square regression analyses were applied from the top 100 largest companies listed on the JSE, from 1995 to 2017.Main findings: The results demonstrated that EBITDA, ITDA and BV accounted for significant variations in equity share prices when controlling for the confounding effects of scale, growth and the incidence of reported accounting losses.Practical/managerial implications: Ultimately, these findings should be seen to confirm the validity of EBITDA as an alternative input to bottom-line earnings in the valuation of equity shares.Contribution/value add: The study extends the debate by providing an alternative perspective based upon Ohlson’s residual income valuation framework, in respect of which there has currently been a paucity of evidence.

Analisis Pengaruh Modal terhadap Operasional Kopkar Karya Bersama PT. Tasik Raja

Cooperatives as a form of business entity are certainly closely related to all forms of activity that are synonymous with capital. The purpose of this study was to determine the analysis of the effect of capital on cooperative operations. This research is a type of descriptive analysis research. Data collection techniques used were interviews, observations, and literature studies from several related journal sources. Based on research analysis results it was found that the effect of capital on cooperative operations has increased the productivity of cooperatives. Where, operational costs such as salaries and allowances, meeting costs and use of company assets have proven to be able to increase cooperative productivity which has an impact on increasing residual income from operations.
 Keywords : Cooperatives, Capital, Operational

Analysis of Stock Intrinsic Value and Projection of Financial Statements through a fundamental analysis approach to PT. Fast Food Indonesia, Tbk in 2022.

This study aims to determine the intrinsic value of PT. Fast Food Indonesia, TBK using the residual profit valuation model which can determine the value of equity at that time as the sum of the current book value and the present value of the estimated residual income in the future. This study uses a descriptive quantitative approach in presenting the results of the analysis. The data source in this study is the annual financial report of PT. Fast food Indonesia, Tbk in 2021 and 2022. Data collection techniques in this study used observation and documentation techniques. This research shows that the result of the projection is the intrinsic value of PT. Fast Food Indonesia Tbk in 2022 is Rp. 1.70 which was found based on the calculation of the prospective analysis in the residual profit valuation model (Residual Income Model). It was recorded that until the end of December 2022 the share price of PT. Fast Food Indonesia, Tbk is Rp. 820. So it can be concluded that the value of PT. Fast Food Indonesia, Tbk is overvalued or the stock market price is higher than the intrinsic value of the stock.
 Keywords: Stock instruction value, Financial statement, prospective analysis, financial ratio