Analyze_This

Well, residual income is defined as NI(t) - r*BV(t-1) = (ROE - r)*BV(t-1)

So for residual income, it has to be Equity(t-1).

For the DuPont model Financial Leverage is defined as (Average Assets)/(Average Equity).

That means the ROE suggested by the DuPont model uses average equity to determine ROE.


It probably just depends on what they ask, and what they give you. I suspect the question will make it obvious which one to use. Obviously if it doesn't give you enough info to calc average equity, just use (t-1).