14.12 Measuring value creation

Question 1

What is “Total Shareholder Return” (TSR) and how is it calculated?

Answer 1

The amount returned to investors, equal to capital gain/loss plus dividend.

TSR = (selling price + dividends received - purchase price) / (purchase price)

Question 2

What is market value added (MVA), and how is it calculated?

Answer 2

The value of a company as a result of its operation in the market. i.e. the increase in value since company formation.

MVA = market value - capital