Formula
Total Shareholder Return = (Dividend + Capital Gain) / Initial Share Price * 100
Know your metric
Importance of
Total Shareholder Return
Comprehensive Return Measure
TSR measures the total returns to shareholders, including dividends and share price appreciation, providing a comprehensive view of investor gains.
Performance Benchmark
It serves as an effective benchmark for assessing the attractiveness of an investment compared to others by indicating the total yield to shareholders.
Incentive Alignment
Many companies use TSR as a metric for executive compensation, aligning the interests of management with those of shareholders.
Drawbacks of
Total Shareholder Return
Market Dependency
TSR is heavily dependent on market conditions and can be influenced by factors outside of company control, such as economic downturns or market rallies.
Short-Term Fluctuations
TSR can fluctuate significantly in the short term, which might not accurately reflect the long-term value creation by the company.
Not Reflective of Operational Efficiency
High TSR might not necessarily indicate operational efficiency or sound business practices, as it can also result from external market factors.
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