Ohlson · Residual income (EBO)
Makes the residual-income model explicit: equity value equals book value per share plus the present value of future excess returns (ROE minus cost of equity), decayed by a persistence factor.
- Guide level
- Practical
- Output
- Intrinsic value
Core formula
V = BVPS + RI₁/(1+r−ω), RI₁ = (ROE − r) × BVPS, where ω is the persistence factor of excess returnsHow to interpret it
Makes the residual-income model explicit: equity value equals book value per share plus the present value of future excess returns (ROE minus cost of equity), decayed by a persistence factor.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
The persistence factor ω is subjective, and book value can be distorted by impairments or buybacks.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.