Total Shareholder Return (TSR)

What Is Total Shareholder Return (TSR)?

Total shareholder return (TSR) is a measure of financial performance, showing the total amount an investor procures from an investment — specifically, equities or shares of stock. To show up at its total, generally expressed as a percentage, TSR factors in capital gains and dividends from a stock; it could likewise incorporate special distributions, stock splits, and warrants. However it is calculated, TSR means exactly the same thing: the sum total of what a stock has returned to the people who invested in it.

Understanding Total Shareholder Return (TSR)

An investor brings in money from stock in two essential ways: capital gains and current income. A capital gain is a change in the market price of the stock from the time it was purchased to the date it was sold (or the current price in the event that it is as yet owned) — profits, all in all. Current income is the dividends paid out by the company from its earnings while the investor actually claims the stock.

While ascertaining TSR, an investor can consider the dividends they really received or were eligible to receive. For example, they might be in possession of the stock on the day the dividend is payable, yet they receive the dividend provided that they owned the stock prior to the ex-dividend date. In this manner, an investor has to realize the stock's ex-dividend date as opposed to the dividend payment date while working out TSR.

Dividends, which are per-share distributions of a portion of a company's earnings to certain classes of its stockholders, can incorporate stock buyback programs, one-time payments, and standard quarterly or semi-annual cash payouts.

TSR is most helpful when measured after some time as it shows the long-term value of an investment, the most dependable measurement for checking a good outcome for most individual investors.

Examples of Total Shareholder Return (TSR)

Total shareholder return is calculated as the overall appreciation in the stock's price per share, plus any dividends paid by the company, during a specific measured stretch; this sum is then separated by the initial purchase price of the stock to show up at the TSR.

As a mathematical equation, it would be:
$\begin&\text = \frac { ( \text - \text ) + \text }{ \text } \\end$

Speculative Example of TSR

As an example, we should assume that an investor bought 100 shares of a company's stock at $20 per share (for a total investment of $2,000). The stock, which they actually own, is presently trading at $24 per share. Since the investor bought the stock a long time back, the company has paid out a total of $4.50 in dividends per share.

What is the investor's TSR over those two years? It would be calculated as

• $24 - $20 (current share price minus original purchase price) = 4
• plus $4.50 (the amount of dividends per share received) = 8.5
• separated by $20 (original per-share purchase price) = .425
• increase by 100 to get a percentage = 42.5%

So the TSR would be 42.5%. As an equation:
$\begin\text &= \big ( ($24 - $20) + $4.50 \big ) \div $20 \&= 0.425 \times 100 \&= 42.5$
Note: If you like to think of TSR in dollar terms versus percentage, you would basically do the initial two stages above, to have $8.50 per share as your total shareholder return, otherwise known as "stock return cash value" as it's called here.

Genuine Example of TSR

For fiscal year 2020, Microsoft Corporation (MSFT) had a TSR of 59.4% for investors who had held it for that whole period. Of that amount, 57.6% came from an increase in share price, and 1.8% was returned from dividends.

TSR can likewise be considered the internal rate of return (IRR) of all cash flows to an investor during the period they've held their shares.

Benefits and Disadvantages of Total Shareholder Return (TSR)

TSR is best utilized while breaking down venture capital and private equity investments. These investments commonly include various cash investments over the life of the business and a single cash outflow toward the end through an initial public offering (IPO) or sale.

Since TSR is expressed as a percentage, the figure is promptly comparable with industry benchmarks or companies in a similar sector. In any case, it mirrors the past overall return to shareholders without consideration of future returns.

TSR addresses an effectively perceived figure of the overall financial benefits generated for stockholders. The figure measures how the market assesses the overall performance of a company throughout a specific time period. Be that as it may, TSR is calculated for publicly traded companies at the overall level, not at a divisional level. Likewise, TSR turns out just for investments with at least one cash inflows after purchase. Furthermore, TSR is externally engaged and mirrors the market's perception of performance; thusly, TSR could be adversely impacted in the event that a fundamentally strong company's share price endures extraordinarily in the short term out of the blue — like negative publicity or peculiar stock market behavior or sentiment.

TSR doesn't measure the absolute size of an investment or its return. Hence, TSR might incline toward investments with high rates of return even when the dollar amount of the return is small. For example, a $1 investment returning $3 has a higher TSR than a $1 million investment returning $2 million. Likewise, TSR can't be utilized when the investment generates interim cash flows. Furthermore, TSR doesn't think about the cost of capital and can't compare investments throughout various time periods.

Total shareholder return (TSR) is a method for determining how much your investment has made for you — how much extra money your capital has earned in a specific time period. It considers both appreciation in a stock's shares and the dividends paid on those shares. It has its restrictions — what financial measurement doesn't? — however overall, it gives a more complete feeling of your return on a stock than essentially gaging the gain in the stock price.

Highlights

• Total shareholder return factors in capital gains and dividends while measuring the total return generated by a stock.
• TSR addresses an effortlessly perceived figure of the overall financial benefits generated for stockholders.
• Total shareholder return (TSR) is a measure of financial performance, demonstrating the total amount an investor harvests from an investment — specifically, equities or shares of stock.
• The formula for working out TSR is { (current price - purchase price) + dividends } \u00f7 purchase price.
• TSR is a decent measure of an investment's long-term value, yet it is limited to past performance, requires an investment to generate cash flows, and can be sensitive to stock market volatility.

FAQ

How Is TSR Measured?

TSR, short for total shareholder return, measures the appreciation in the price of a stock's shares, plus the total sum paid in dividends per share, throughout a specific time period.

How Do You Calculate Total Shareholder Return?

To compute total shareholder return (TSR), first, deduct a stock's current price per share from the price originally paid for it. Then, at that point, add the dollar amount of dividends received per share, along with some other special distributions or payouts (like from a stock buyback, for example). Partition this sum by the stock's purchase price per share. Increase by 100 to show up at a percentage figure for the TSR.

What Is Total Shareholder Return?

Total shareholder return (TSR) is a method for assessing an investment's performance. It factors in capital gains and dividends to measure the overall returns an investor procures from a stock.