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.
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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For more on incorporating RCE into the corporate planning process, see:
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