Difference between revisions of "Total shareholder return"

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(Aligned with course materials to give a general definition before going into the calculation)
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''Valuation.''
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(TSR).  
 
(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.
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Total shareholder returns take account of both the dividend income and the capital gains (or losses) enjoyed (or suffered) by shareholders.  
  
This measure of the total rate of return to shareholders for the period under review, is based on:
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Total shareholder returns are measured as the internal rate of return of all of the shareholders’ cash flows including their initial investment.
  
1. The opening value of the shares;
 
  
2. Dividends received by the investor;
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This measure of the total rate of return to shareholders is based on the following five amounts:
  
3. Any capital returned to the investor;
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#The opening value of the shares
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#Dividends received by the investor
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#Any capital returned to the investor
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#Any further capital paid in by the investor
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#The closing value of the shares.
  
4. Any further capital paid in by the investor; and
 
  
5. The closing value of the shares.
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The TSR is calculated as the Internal rate of return (IRR) of all of these five items, taking account of their timing as well as their amounts.
  
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.
 
  
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<span style="color:#4B0082">'''Example: Dividends and capital growth only'''</span>
  
 
Taking a simple example with only:
 
Taking a simple example with only:
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The IRR of these cash flows is 10%: $(100) + $110 x 1.10<sup>-1</sup> = $0.
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The IRR of these cash flows is 10%:  
  
So the TSR for the year under review is 10%.
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$(100) + $110 x 1.10<sup>-1</sup> = $0.
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So the Total Shareholder Return for the year under review is 10%.
  
  
 
== See also ==
 
== See also ==
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* [[Economic value added]]
 
* [[Internal rate of return]]
 
* [[Internal rate of return]]
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* [[Market value added]]
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* [[Return on equity]]
 
* [[Shareholder returns]]
 
* [[Shareholder returns]]
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* [[Shareholder value]]
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[[Category:Corporate_financial_management]]

Latest revision as of 13:32, 8 April 2021

Valuation.

(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 is based on the following five amounts:

  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
  5. The closing value of the shares.


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


Example: Dividends and capital growth only

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 Total Shareholder Return for the year under review is 10%.


See also