Residual income and notional interest

I cannot add to what I say in the lecture. If you say which bits of the lectures you are not clear about, then I will explain.

I understood the numerical part.. Just want to know what exactly is Residual income and Notional interest.

The residual income is the profit less the notional interest on the capital employed, and is a way of measuring performance. Notional interest is interest whatever rate of return the company wants to achieve. It is called notional because it is not actually invoiced to the division - it is only for the purpose of calculating the residual income.

Thank you so much for the help!

You are welcome :-)