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Basic Question 3 of 5

When residual income is constantly negative, a company' stock price should ______.

A. increase
B. decrease
C. remain the same
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User Contributed Comments 1

User Comment
davidt876 i think it's more pertinent to mention that *earnings yield increases since this valuation method uses earnings as its cash flow.

also if the company doesn't pay a dividend then the dividend yield can't increase.
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I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach

Andrea Schildbach

Learning Outcome Statements

calculate and interpret residual income, economic value added, and market value added;

CFA® 2025 Level II Curriculum, Volume 4, Module 24.