In our earlier blog, Total Shareholder Return – Definition & Explanation we discussed about the meaning of Total Shareholder Returns and factors driving returns. In this blog, we will discuss how to calculate TSR if the investment period is more than one year.
Example 1 – TSR calculation when there is no dividend payout.
John has purchased 1 share of ABC Limited for $110 on 31st December 2015. ABC Limited has not paid any dividend till date. John wants to calculate the total returns earned annually by him in ABC Limited from 31st December 2015 to 31st December 2020.
Here is a table showing the share price of ABC Limited for last 5 years from 31st December 2015 to 31st December 2020.
TSR is total returns earned by an investor during the investment period. Investing in stock generate returns in 2 ways.
Capital appreciation from share price increase
Annual Capital appreciation is calculated as change in share price divided by share price at the beginning of the period.
For example, Capital appreciation in 2016 = (115-110)/110 = 4.5%
Dividend yield is calculated as dividend earned during the period divided by the share price at the start of the year.
In our example, there is no dividend, therefore the dividend yield is NIL.
Total shareholder return in this case, is just the share price appreciation.
The annual share price appreciation and dividend yield for all the years is shown in the below table. Total TSR in this example, is equal to the share price change.
Here TSR calculation for the total investment period, can be done in two ways.
One is by calculating annualized share price appreciation, which is equal to the total TSR in this example.
n = Total no of years
In the second method, we can compute the annualized return by using the Geomean function in excel.
To calculate Geomean, type =Geomean(1+(YoY return range))-1
Then press, Control + Shift + Enter (Since it is an array function). You get the same answer. TSR = 6%.