Difference between revisions of "Total shareholder return"

From ACT Wiki
Jump to: navigation, search
(Link with new Shareholder returns page.)
(Aligned with course materials to give a general definition before going into the calculation)
Line 1: Line 1:
 
(TSR).  
 
(TSR).  
  
A measure of the total rate of return to shareholders for the period under review, based on:
+
Total shareholder returns take account of both the dividend income and the capital gains (or losses) enjoyed (or suffered) by shareholders. Total shareholder returns are measured as the internal rate of return of all of the shareholders’ cash flows including their initial investment.
 +
 
 +
This measure of the total rate of return to shareholders for the period under review, is based on:
  
 
1. The opening value of the shares;
 
1. The opening value of the shares;

Revision as of 10:39, 15 July 2015

(TSR).

Total shareholder returns take account of both the dividend income and the capital gains (or losses) enjoyed (or suffered) by shareholders. Total shareholder returns are measured as the internal rate of return of all of the shareholders’ cash flows including their initial investment.

This measure of the total rate of return to shareholders for the period under review, is based on:

1. The opening value of the shares;

2. Dividends received by the investor;

3. Any capital returned to the investor;

4. Any further capital paid in by the investor; and

5. The closing value of the shares.

The TSR is calculated as the Internal rate of return (IRR) of all of these items, taking account of their timing as well as their amounts.


Taking a simple example with only:

Opening value of each share at Time 0 = $100;

Dividend per share paid one year later at Time 1 = $4;

Closing value of each share at Time 1 = $106.

And no other changes.


The total relevant cash flows for the investor are:

Time 0 outflow = $(100)

Time 1 total inflow = $4 + $106 = $110.


The IRR of these cash flows is 10%: $(100) + $110 x 1.10-1 = $0.

So the TSR for the year under review is 10%.


See also