Total shareholder return is typically analyzed as the sum of price appreciation and dividend payouts over a given time period. But this analysis is problematic, because both of these component metrics represent the allocation, not the source, of created business value. They don’t explain what created the value that drove the share price higher or generated the cash needed to pay a dividend.
The actual drivers of value creation are return on capital and growth (net of investments to generate the growth). These drivers, combined with fluctuating investor expectations about future capital returns and growth, in turn drive TSR. Reframing TSR as a function of these actual drivers is a useful way to get from price to value because the analysis begins to reveal how investors are translating your business performance into share price.
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