Residual income calculator

Because the justified P/B framework only makes sense for balance-sheet-driven businesses. The other ten models in the suite either fail or distort for banks and insurers: FCFF DCF has no meaning when the balance sheet is the operations, owner earnings is excluded by archetype, and EPS DCFs systematically miscalibrate because provision-cycle volatility dominates the projection. Residual income says a financial is worth its book value plus the present value of every dollar of excess return it earns above its cost of equity. Applying that to a tech company would silently produce a meaningless number, so the model refuses to run for non-financials, exactly the same design as the EV/Revenue and REIT NAV/AFFO calculators.

It is the multiple of book value the fundamentals justify: justified P/B = (ROE − g) / (Ke − g). If ROE equals Ke, justified P/B is exactly 1.0 (the company earns just enough to cover its cost of equity, so book value is fair value). If ROE exceeds Ke the multiple rises above 1.0 (excess return), and if ROE is below Ke it falls under 1.0 (the bank is destroying value on each dollar of book equity and should trade at a discount to stated book). The headline output is justified_pb_mid; compare it against current_pb (what the market is paying now) and the gap is the platform's clearest over/undervalued-vs-fundamentals signal for the financial archetype.

Through the normalized ROE signal. ROE is the most volatile input for financials: provision cycles, one-time gains, structural recovery. When the forward ROE (derived as forward EPS ÷ book value) is at least 1.5× the current ROE, that signals a genuine recovery, so the model blends 70% forward + 30% current rather than fully trusting either. A bank moving from a 6% trough to a 12% forward gets 0.70 × 12% + 0.30 × 6% = 9.9% as the normalized figure, and the audit shows blend_forward_eps_roe_with_current_roe so you know the blend fired. A bank going from 11% to 13% (no real inflection) just uses current ROE.

Because a forward EPS that implies an ROE above 25% almost always reflects a data anomaly: a one-time reserve release, a merger gain, analysts pricing a sudden capital event that will not recur. If the model trusted it, the recovery blend would be dominated by a number that has nothing to do with the bank's steady-state earning power. Above the cap, the forward signal is rejected and the model falls back to current ROE. The audit records that the forward was rejected.

One of the three stress scenarios produced Ke ≤ g or ROE ≤ g, so the justified P/B math is undefined. In practice this happens when ROE itself is barely above the terminal growth rate: the numerator (ROE − g) goes to zero or negative. The interpretation is structurally informative, not an error: the financial is earning just enough to fund its required-growth retention, with no excess accruing to equity, so it is not value-creative and justified P/B is simply the wrong lens. The model enforces both safety conditions, Ke > g (the universal Gordon constraint) and ROE > g (must be value-creative), and returns a clean FAILED status rather than a misleading number.

The model derives book value per share as currentPrice ÷ priceToBook, so you can supply market data instead of accounting data and it still runs. Likewise, if you have no trailing ROE but you do have a forward EPS, it derives forward ROE = forwardEps ÷ book value (capped at 25%) and uses that as the ROE signal. The audit always shows which book-value source and which ROE source were used.