Residual cash earnings (RCE) is a measure of economic profit that consists of an earnings component—gross cash earnings (GCE)—less a capital charge based on operating assets.
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RCE = GCE – Capital Charge
GCE = EBITDA – taxes + P&L investments (R&D) Capital Charge = Required Return x Gross Operating Assets Gross Operating Assets = undepreciated assets less cash, plus intangibles and P&L investments
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Chris Moore
Chris Moore is a vice president at Fortuna Advisors. His previous publications include the “2024 Fortuna Advisors Value Leadership Report” and the “2024 Fortuna Advisors Buyback ROI Report.” Moore has supported clients in the energy, distribution and logistics, aerospace and defense, and gaming industries integrating residual cash earnings (RCE) into strategic and operational frameworks, and incentive compensation design. You can reach him at [email protected].
Michael Chew
Michael Chew is manager of thought leadership at Fortuna Advisors. His recent publications include “Driving Outperformance: The Power and Potential of Economic Profit” (Journal of Applied Corporate Finance), the “2024 Fortuna Advisors Value Leadership Report,” and the “2024 Fortuna Advisors Buyback ROI Report.” Anyone interested in learning more about economic profit (EP)-based incentives and resource allocation can reach out to him at [email protected].
