Residual income

Residual Income / Economic Value Added (EVA) Valuation

Values a company as: Book Value + Present Value of Future Economic Profit. Economic profit = earnings ABOVE the required return on equity. Especially valuable for financial institutions (banks, insurers) where DCF is problematic due to the nature of debt (it's inventory, not capital) and for capital-intensive firms. Also known as the Edwards-Bell-Ohlson (EBO) model in academic literature.

Preflight

Run the canonical pre-flight sequence — MCP health probe, ticker resolution, workspace style.md override, memory load, and coverage check. See contracts/preflight.md.

Include the X-Agentii-Trace header on every tool call per contracts/x-agentii-trace-header.md.

Triggers

• residual income valuation {ticker}
• EVA valuation {ticker}
• economic value added {ticker}
• excess return model {ticker}
• book value plus economic profit {ticker}
• EBO model {ticker}
• bank valuation model {ticker}
• financial institution valuation {ticker}
• value {ticker} residual income
• RI valuation {ticker}

Defaults

Parameter	Default	Notes
projection_years	5	Years of explicit residual income forecast
terminal_growth	2.5%	Perpetual RI growth (should be conservative)
cost_of_equity	CAPM	Ke = Rf + β × ERP, or manual input

Methodology

Retrieval Scope

structured_only — Residual Income uses book value from XBRL + earnings estimates + current price.

Retrieval Strategy

See contracts/retrieval.md for the canonical decision tree; skill-specific retrieval detail is in references/methodology.md.

Temporal Scope

Default lookback: 4 fiscal quarter(s); maximum: 20. The default balances recency against the trend window this analysis requires.

Tool Allowlist

Per frontmatter allowed_tools:

• search_xbrl_facts — primary structured financial facts (is_primary default)
• get_realtime_quote — latest market price for valuation cross-checks
• search_earnings_calendar — EPS actual/estimate/surprise + report dates

Protocol

Step-by-step execution detail is in references/methodology.md.

When to Use Residual Income vs. DCF

Company Type	Preferred Model	Why
Banks, Insurers	Residual Income	Debt is inventory, not capital — DCF doesn't work
Capital-Intensive Industrials	Residual Income	Asset-heavy; book value is meaningful
Asset Managers	Residual Income	AUM-based; book value + fee earnings
Tech, SaaS, Pharma	DCF	Asset-light; cash flow focus
Mature Dividend Payers	DDM	Dividends are the primary return mechanism
High-Growth, No Earnings	Revenue-based DCF	No earnings or book value to anchor

Output File

Write the final deliverable to {ticker}/{YYYY-MM-DD_HHMM}_residual-income_{affix}.md.

Output Structure

The deliverable is a structured markdown report written to the path in ## Output File. Full section-by-section template (headings, tables, and field definitions) lives in references/output-structure.md. Required elements:

1. Executive Summary — headline conclusions (≤200 words).
2. Core analysis sections — per this skill's methodology and analyst modes.
3. Data classification — tag findings [FACT] / [DEDUCTED] / [VIEW] per contracts/snapshot-synthesis.md.
4. Coverage Gaps & Citations — inline /v/ citations are PRIMARY (immediately after each fact); the bottom Citations section is a non-duplicative roll-up index.
5. Output frontmatter — emit the FR-090 structured block per contracts/output-frontmatter-schema.md.

Citations & memory: follow contracts/citation-and-memory.md — ≥1 citation per 200 words; every material fact, table row, and metric is immediately followed by its inline clickable https://agentii.ai/v/{ticker}/{citation_id}/{N} link; a bottom Citations section provides a non-duplicative roll-up index; the closing TUI reply includes a compact Key Citations list (headline 5–10 facts) of clickable /v/ URLs; and append the run to agentii.md per contracts/agentii-md-schema.md.

Validation Gates

1. RI convergence: residual income must not grow perpetually above Ke. If failed: terminal growth g must be < Ke by at least 2%.
2. Book value consistency: BV_t = BV_t-1 + NI_t - D_t must hold for all forecast years. If failed: refuse delivery; check arithmetic.
3. Economic plausibility: fair value P/B between 0.1x and 10x. If failed: flag extreme assumptions.

Tool Fallbacks

Per-tool failure modes and fallback actions are tabulated in references/tool-fallbacks.md.

Memory & Snapshot

• Memory load (pre-flight): load prior workspace context for the ticker before retrieval — see contracts/memory-load.md.
• Structured output frontmatter: emit the FR-090 block (key_metrics, conclusions, facts_count, deducted_count, views_count, citation_count) per contracts/output-frontmatter-schema.md.
• Snapshot synthesis: after writing the deliverable, update the two-tier snapshot and classify findings as [FACT]/[DEDUCTED]/[VIEW] — see contracts/snapshot-synthesis.md.
• Session archival: record the run under sessions/{YYYY-MM-DD}/ and update sessions/INDEX.md per contracts/session-format.md.

Final Summary (TUI)

End the closing chat reply with a compact Key Citations list (headline 5–10 facts), each a clickable https://agentii.ai/v/{ticker}/{citation_id}/{N} link, so the user can cmd+click straight to the exact SEC page. See contracts/citation-and-memory.md.

Error Handling

Failure Mode	Action	User-Facing Message
Negative book value	Halt	"Book value is negative — Residual Income model not applicable. Use DCF."
No earnings data	Halt	"Insufficient earnings data for {ticker}."