FairValueToolkit
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S-RIM사경인 CPA / Ohlson (1995)

S-RIM (Residual Income Model) Calculator

S-RIM computes intrinsic equity value by adding the discounted present value of future excess returns (ROE exceeding cost of equity) to the current book value of equity.

Calculator Inputs
Balance Sheet > Total Stockholders' Equity
Historical 3-5 Year Weighted Average ROE
US Treasury + Equity Risk Premium (8.0~9.0%)

Theoretical Foundation & Equation

The Residual Income Model (RIM) is grounded in clean-surplus accounting. If a firm generates a Return on Equity (ROE) exactly equal to its cost of equity (ke), its value equals its book value. Value is created only when ROE exceeds ke.

Core Intrinsic Formula
Fair Value = Book Value + [Book Value × (ROE - ke) × Fade Factor(ω)] / (1 + ke - Fade Factor(ω))
Variable Definitions & Disclosure Guidance
SymbolVariable NameDescriptionFiling Source Guide
B_0Book Value (BVPS)Total common stockholders equity or Book Value Per ShareSEC EDGAR > 10-K Balance Sheet > Total Stockholders' Equity
ROEExpected Return on EquitySustainable annual Net Income divided by Book EquityHistorical 3-5 year weighted average ROE or consensus estimates
k_eCost of EquityMinimum required rate of return for equity holdersCAPM (Risk-free rate + Beta × ERP) or Investment-grade Corporate Bond Yield (8-9%)
ω (omega)Excess Return Persistence FactorPersistence coefficient: 1.0 (sustainable moat), 0.9 (10% annual fade), 0.8 (20% fade)Reflects competitive dynamics and economic moat erosion
Financial Intuition: Residual Income represents economic profit generated over and above the opportunity cost of equity capital. Capitalizing this stream of excess earnings and adding it to book value produces a rigorous intrinsic value without requiring long-term free cash flow forecasts.

Step-by-Step Worked Example

Apex Industrial Corp. (Benchmark Manufacturing Case)

A stable manufacturing company with $50.00 Book Value Per Share, 15.0% expected ROE, and 8.0% cost of equity.

Sample Financial Filing Inputs
Book Value Per Share (BVPS)
$50.00
Balance Sheet Common Equity / Shares
Expected ROE
15.0%
3-Year Weighted Average ROE
Cost of Equity (ke)
8.0%
Moody’s BBB Corporate Yield / CAPM
Calculation Steps
Step 1: Calculate Excess Spread+7.0% Spread
ROE (15.0%) - ke (8.0%) = 7.0%

The firm generates a 700 bps return above its cost of capital.

Step 2: Calculate Annual Residual Income$3.50 per share
$50.00 × 7.0% = $3.50

Annual economic excess earnings per share.

Step 3: Calculate 3-Tier Value Scenarios$60.00 ~ $93.75 Range
w=1.0: $50 + ($3.50 / 0.08) = $93.75 | w=0.9: $50 + ($3.50 × 0.9) / 0.18 = $67.50 | w=0.8: $50 + ($3.50 × 0.8) / 0.28 = $60.00
Example Conclusion & Interpretation

At a current trading price of $60.00, the stock offers a ~36.0% margin of safety against the base sustained fair value of $93.75, trading at the conservative 20% fade threshold.

Suitability Checklist & Limitations

Best Suited For
  • •Firms with reliable book values and stable positive ROE profiles (manufacturing, consumer staples, financials)
  • •Investors seeking an intrinsic model without sensitive terminal cash flow assumptions
  • •Mature value companies with clear accounting history
Not Suitable For
  • •Unprofitable or distressed companies with negative book equity
  • •Firms with frequent dilutive secondary offerings or substantial restructurings
  • •Asset-light early-stage tech where tangible book value is negligible
Recommended Alternative Model

For high-growth asset-light companies, a multi-stage DCF forecasting cash generation is superior.

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Frequently Asked Questions

S-RIM anchors ~60-80% of value directly on verified historical balance sheet equity (B0), drastically reducing sensitivity to distant terminal year forecasts.
Primary Citations & Source Documentation
J. A. Ohlson / Kyung-in Sa, CPA (1995)

Earnings, Book Values, and Dividends in Equity Valuation (Contemporary Accounting Research, 1995)

View Source / Filing Reference
Legal Caveat
  • One-off non-operating gains (asset sales) must be normalized out of expected ROE.
  • This calculator is for educational estimation and does not constitute investment advice.