How to calculate Total Shareholder Returns - YouTube

Welcome back.

In our earlier video, we had discussed about the meaning of total shareholder returns,

how to calculate the annual total shareholder returns and the factors driving the returns.

We got follow up questions on how do we calculate the total shareholder return

if the holding period of the share or security is more than one year.

In this video, we will discuss how to calculate total return to shareholders

or total shareholder returns if the investment period is more than one year.

Let us look with the help of a simple example.

So, here we have a share price of a company from 31 December 2015 to 31 December 2020.

This company hasn't paid any dividend during this period.

So, just to recap, total shareholder returns is driven by two factors,

the one is the capital appreciation

with the increase in the share prices and second is the dividend yield.

So, in this case, we will calculate both the share price appreciation and dividend yield.

So, share price appreciation is the share price during the closing period

minus share price at the start of the period.

So, that gives us the share price change divided by the share prices at the start of the period.

So, in the year 2016, if someone invested in this stock at $110 on 31 December 2015,

so, the share price appreciation from 31 December 2015 to 31 December 2016 was 4.5%.

We will calculate the share price appreciation for each year.

To calculate the share price appreciation, we will select the range and then press F2

and then Ctrl and Enter.

So, the share price appreciation in the first year was 4.5%,

in the second year, the share prices declined from $115 to $90.

So that is a negative 21.7% shareholder return.

In the third year, the share prices increased from 90 to 120. So, it's a 33%

appreciation similarly 12.5% and 8.9% in the fourth and fifth year.

The dividend yield is calculated as dividend paid during the period which is zero in this case,

divided by the share price at the beginning of the period.

The dividend yield is zero, but to calculate for all the periods,

then select the range Press F2, and then Ctrl + Enter,

dividend yield is zero.

Now, total shareholder return is share price change which is 4.5% plus dividend yield.

The total shareholder return is 4.5% in year one.

And similarly if we Press F2 and Ctrl and Enter, we get the shareholder return for each period.

Now, to calculate the year-on-year TSR, we'll use the GEOMEAN function in Excel.

To use the GEO function type is equal to, GEOMEAN 1 + select the range,

close the bracket and then -1 and then press Ctrl Shift and Enter.

So the total shareholder return for this company during the period of 5 years is 6%.

We can also calculate it with a different formula.

So there is an alternate way to calculate the shareholder return

when there is no dividend payment.

So if someone invested $110 on 31 December 2015

that investment became $147 in year 2020.

So we can just calculate the compounded annual growth rate which is 147,

the closing share price divided by the share price at the start of the period

to the power of 1 by 5, because we are calculating the returns for five years,

1 and then Press Enter.

So we get the same answer using this formula

but this formula can only be used when there is just the share price increase or decrease

and no dividend payment.

In this case, the total shareholder return is just the share price appreciation,

which is 6% on an annualized basis, for the last five years.

Moving to the second example, so here we have a company

where we have a share price at the end of each year from 2015 to 2020.

This company has also paid dividends during each year.

So again, we will calculate the TSR on the year-on-year basis,

which is sum of the capital appreciation, which is share price change and dividend yield.

So let's quickly do this.

So share price appreciation is share price at the end of the period,

minus share price at the beginning of the period

divided by the share price at the beginning of the period,

so it's 4.5%, dividend yield is the dividend paid during the year

divided by share prices at the start of the year. So it's 5.5%

and total shareholder return is the sum of capital appreciation and the dividend yield.

So the total shareholder return in the year 2016 is 10%.

So likewise, we'll calculate the TSR for each year.

So first, for the share price change, we'll select the range

and then Press F2 and then Ctrl and Enter,

so the dividend yield again, Press F2 and then Ctrl and Enter

and TSR is just the sum of these two,

Press F2 Ctrl and Enter.

So we get the TSR on a year-over-year basis.

To calculate it for the period of five years, we can do it again by two methods.

First is by using the GEOMEAN function in Excel.

So we can use by typing is = GEOMEAN 1+ select the range, the TSR range

for the entire period,

1 and then since it's an array function, Press Ctrl, Shift and Enter.

So the TSR for this company is 13.3%.

We can calculate the TSR with an alternate method also.

So suppose you have invested $100 in this company on 31 December 2015.

This investment becomes 100 multiplied by 1+ the TSR during 2016 that is $110 in 2016.

And likewise, if we Press F2 and Ctrl and Enter.

So we see that $100 invested on 31 December 2015 became $186.3 on 31 December 2020.

Now we can calculate the annualized TSR.

So annualized TSR is the value of the investment at the end of the period

divided by value of investment at the start of the period

to the power 1 by the number of years, which is 5 years, - 1 and then Enter.

So we get the same answer.

TSR for this company is 13.3%.

So this is the way how we can calculate the TSR

if the holding period of the security is more than one year.

Hope you enjoyed this session.

If you like this video, please share it with your friends and colleagues.

And also don't forget to subscribe to our channel and like this video.

Thank you.