Residual income is the money that continues to flow after an initial investment of time and resources has been completed. It is the income generated by a firm after accounting for the true cost of capital. Residual income can come from various sources, including artist royalties, rental income, interest income, and dividend payments. In personal finance, residual income can refer to an individuals discretionary income, or the total amount of money left over after paying all personal debts and obligations. In corporate finance, residual income is a measurement of corporate performance that reflects the total income generated after paying all relevant costs of capital.

The calculation of residual income is as follows: Residual income = operating income - (minimum required return x operating assets) . In equity valuation, residual income is used to approximate the intrinsic value of a companys shares. The residual income valuation model values a company as the sum of book value and the present value of expected future residual income.

It is important to note that residual income is not the same as passive income. Passive income is earnings from a rental property, limited partnership, or other enterprise in which a person is not actively involved. Residual income, on the other hand, is the money that continues to flow after an initial investment of time and resources has been completed.

In personal finance, residual income is synonymous with monthly disposable income. It is the total income that remains after paying all monthly debts. The VAs minimum residual income is considered a guide and should not trigger an approval or rejection of a VA loan on its own. Instead, its most often considered in conjunction with other credit factors.