Residual claim
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
The claim on cash flows remaining after contractual claims are satisfied; the claim of common equity.
Residual claim in plain English
A residual claim means "you get whatever is left over after everyone else gets paid." Think of a lemonade stand: first you pay for cups and lemons, then anyone you borrowed money from, and only the leftover cash is yours to keep. Common shareholders (the owners of a company) are in exactly this spot — workers, suppliers, and lenders all have contracts that must be honored first, and owners get whatever remains. That's why owning stock can be very rewarding when a company thrives, but also why owners are last in line and can be left with nothing if things go badly.
Learn these first
Practice Residual claim
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide