Thursday, June 15, 2023

Total Shareholder Return (TSR): Definition Formula Example Calculation

Total shareholder return (TSR) is an important concept that takes into account stakeholders. It's a measure of the overall return on investment made by an investor in a particular company over a given period of time.

Being an investor it's always a good idea to look at the company's TSR before investing your money.

This metric can give an idea of how well the company is doing in terms of return on investment. It also provides a good indication as to whether or not it's worth investing in the stock.

What is Total Shareholder Return or TSR?

Total shareholder return is the profit made from a company's stocks. It includes anything made when selling the stock plus money from dividends. Investors use these metrics to figure out how much they have earned.

In simple words, TSR is a number that shows how much money stockholders have made.

This means that if a company’s TSR is high, it indicates that its shareholders have made more money. On the other hand, if the TSR is low, it means the investors haven't made much from their stock investments.

Investors can use this information to make better decisions about whether or not to invest in a particular company.

How to Calculate TSR

TSR is calculated at the end of a certain period. It's often used to compare different companies on an annual or quarterly basis.

Here is the formula for calculating TSR

{(Current Price - Purchase Price) + Dividends} / Purchase price

Current Price: The current price is the most recent stock price. This is the price that investors purchase certain stocks.

Purchase Price: The purchase price is the amount of money paid for the stock.

Dividends: Dividends refer to the company’s profit that is shared among shareholders.

The TSR formula can be used to compare different stocks and determine which one will provide you with a better return on investment.

Examples of TSR or Total Shareholder Return

Let's think that an investor bought 100 shares of a company at $20 per share ($2000 in total). The investor received a dividend of $1 per share. Let's assume that in the next 2 years, the stock price went up to $30.

Using the formula above, we can calculate TSR for this example.

{(30 - 20) + 1} / 20 = 0.55 or 55% return on investment

This means that the investor made a total return of 55%.

Since the investor bought 100 shares for $2,000, the total profit made is

55% x $2000 = $1,100

As mentioned before, TSR is a great metric for investors to evaluate the stock performance of a particular company. It takes into consideration both capital gains and dividends so they can get an accurate picture of the total return on investment.

Conclusion

Total shareholder return is an essential indicator for investors when calculating a company’s performance and potential returns from stock investments. By understanding how to calculate TSR and using it as part of their analysis, investors can make better decisions about whether or not to invest in a certain stock.

Article Source Here: Total Shareholder Return (TSR): Definition, Formula, Example, Calculation



source https://harbourfronts.com/total-shareholder-return/

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