Total Shareholder Return (TSR) is a financial metric evaluating the performance of a company’s stock over a specific period. It combines share price appreciation and dividends to represent the total return to an investor. The calculation involves determining the change in share price between the beginning and end of the period, adding any dividends paid out during that time, and then dividing the result by the initial share price. For instance, if a stock begins at $100, ends at $120, and pays out $5 in dividends, the TSR would be (($120 – $100 + $5) / $100), or 25%. This percentage reflects the overall return an investor would have received.
This metric provides a comprehensive view of a company’s success from an investor’s perspective. It enables comparisons between companies, regardless of their dividend policies or share price volatility. A high TSR often indicates strong management, efficient capital allocation, and attractive shareholder value creation. Historically, this methodology has gained prominence as a key performance indicator (KPI) because it aligns company performance with investor returns, thereby incentivizing leadership to focus on long-term value maximization.