Total Shareholder Return

Updated on January 4, 2024
Article byNiti Gupta
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Total Shareholder Return?

Total Shareholder Return (TSR) is an indicator of the performance of the stock return over a period for which it is held. The return includes a capital appreciation of the stock and the dividend earned on the stock. And is expressed in percentage terms.

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Source: Total Shareholder Return (wallstreetmojo.com)

It helps evaluate the investment performance and is calculated by comparing the current stoc price with the price paid during purchase. It represents the financial benefit that the stock is able to generate for the investor and is also an indicator of the company’s performance.

Total Shareholder Return Explained

Total shareholder return charts take into account two components of return: capital appreciationCapital AppreciationCapital appreciation refers to an increase in the market value of assets relative to their purchase price over a specified time period. Stocks, land, buildings, fixed assets, and other types of owned property are examples of assets.read more and dividend received on the stock since the time stock was purchased. Thus, it provides the investor with information regarding the stock’s total growth over time. It is very easy to understand and can be used by the investor to evaluate the performance of the stock by comparing the same with other stocks of companies operating in similar industries using the same benchmark. Also, based on this total shareholder return analysis, the investor can conclude whether it is feasible to remain invested in the stock or he shall take exit from the stock.

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Formula

Let us see how to calculate total shareholder return. Total shareholder return for a particular stock can be determined using the following formula.

TSR = Current Price – Purchase Price + Dividend / Purchase Price

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Source: Total Shareholder Return (wallstreetmojo.com)

Here,

  • Current Price = Price at which stock is trading currently
  • Purchase Price = Price at which stock is acquired
  • Dividend = Dividend received during the year

Thus, to calculate the TSR for a year, the sum of the change in stock price and the dividendDividendDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more received is divided by the purchase price of the stock and is expressed as a percentage.

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Source: Total Shareholder Return (wallstreetmojo.com)

Example

Let us have a look at an example of how to calculate total shareholder return, to have a better understanding of the concept.

Suppose the investor purchased a stock of XYZ company for $20. The current price of the stock comes out to be $25. Also, till date the investor has received a total dividend of $4.

Solution:

Calculation of total shareholder return will be –

TSR = (25 – 20 + 4 ) / 20 = 45%

The TSR for the stock comes out to be 45%.

Advantages

  • TSR is a very useful tool for comparing the returns generated by the stock under consideration and stocks of other companies of similar industries.
  • Total shareholder return charts help to determine the overall return generated by the stock on the investment done on it. It is a return that is very easy to understand and analyze.
  • It helps an investor to understand how well the stock is performing.

Disadvantages

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