Total Shareholder Return (TSR): A Measurement of a Company's Overall Performance; Calculated Differently from Stock Price

Total Shareholder Return (TSR): A Measurement of a Company's Overall Performance; Calculated Differently from Stock Price

Here's a refreshed take on the Total Shareholder Return (TSR):

Hey there! Investing in stocks can bring some serious cash, but how do you know how much you're actually making? That's where Total Shareholder Return (TSR) comes in. TSR is all about measuring the financial performance of an investment in terms of equities or shares of a company, breaking down the returns into two major components: capital gains and dividends.

Capital gains? That's the fancy term for the change in a stock's market price from the time you bought it to whenever you decide to sell. Dividends, on the other hand, are per-share distributions of some of a company's earnings paid out to its shareholders.

When it comes to calculating TSR, only the dividends you actually received or were eligible to receive matter. To understand this better, think about the ex-dividend date. This is the date before which you must own the stock to be entitled to receive the upcoming dividend.

TSR is indeed a useful tool when measured over time because it shows the long-term value of an investment, which is important for most individual investors. However, it's important to remember that it only looks back on past performance and not on future returns.

So, let's dive into a simple example. Assume you bought 100 shares of a company at $20 per share, and the stock is now trading at $24 per share. Add the dividends paid per share, which in this case is $4.50. To calculate the TSR, simply subtract the purchase price from the current price, add the dividends, divide the sum by the purchase price, and finally, multiply by 100 to get the percentage return.

For the period 2021 through 2024, Microsoft Corp. (MSFT) had a TSR of 19.9%. Of that amount, 19.2% came from an increase in share price, and 0.7% was returned from dividends.

TSR serves as the internal rate of return (IRR) of all cash flows to an investor during the period they've held their shares. While it has some limitations, it does provide a more complete sense of your return on an investment than relying solely on the appreciation in the stock price.

1. venture capital firms might find evaluating a startup's Total Shareholder Return (TSR) intriguing, as it encompasses both capital gains and dividends, offering an all-inclusive perspective on the startup's financial performance;
2. In the realm of decentralized finance (DeFi) and initial coin offerings (ICO), an investor should analyze the TSR of their investments, as it provides insights into the total return, considering both price changes and dividend-like rewards;
3. Some business analysts believe that traditional venture capital investments can coalesce with DeFi trading by examining ICOs using TSR, merging the conventional associates of venture capital and finance with the emerging trends in the digital asset space.

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