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Weaknesses of Residual Income Model

December 24, 2015
  1. Accounting data can be manipulated by management
  2. Requires many adjustments (links to FSA)
  3. Assumes clean surplus relation holds or that its failure to hold has been taken into account (link to FSA)

Bt = Bt-1 + Et – Dt

Residual Income assumes no adjustments directly to equity.

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From → Asset Valuation

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