Chapter 13: Residual Income Valuation—Advanced Topics

In this section

• Single-Stage vs. Multi-Stage Residual Income Models
  Explore how single-stage and multi-stage residual income models differ, their key assumptions, and practical applications for valuing equity. Learn best practices, pitfalls, and strategic exam approaches.
• Continuing Residual Income and Terminal Value
  Explore how abnormal returns extend beyond the forecast period in residual income models, learn to estimate terminal values underpinning continuing RI, and evaluate the persistence of competitive advantages over time.
• Adjusting for Off-Balance-Sheet Items
  Learn how to identify and recast off-balance-sheet items in residual income valuation, including operating leases, SPEs, intangible assets, and more.
• Vignette: Complex Residual Income Scenario
  Explore a multi-stage residual income valuation with intangible assets, partial year adjustments, brand intangibles, and continuing value fade in this advanced equity valuation vignette.
• Challenges and Limitations in Residual Income Valuation
  Understand the various accounting, forecasting, and operational obstacles that can arise in applying residual income-based equity valuation methods.
• Best Practices in Implementation
  Explore essential best practices for implementing advanced residual income valuation models, including cross-verification, scenario testing, regular updates, thorough documentation, and peer review.