Total return to shareholders

Firms that were unable to meet the requirements of the 4+2 formula dramatically increased their chances of failure and the differences in financial performance among these firms were remarkable. Winners produced total returns to shareholders (TRS) of 945% over the ten-year period of the study, whereas Tosers were only able to grow TRS 62%. Sales rose 415% for Winners, but only 83% for Losers. Similar results held for operating income. 

The exact values for the annualized Total Return to Shareholders are 12.9 percent for the chemical industry and 13.8 percent for the US market from 1980 until November 2004 (Source Thomson Financial). 

We therefore chose to examine the performance of chemical companies in relation to some easily measurable dimensions of their corporate activity - such as product portfolio, scale, geography, market position, and product focus. By classifying companies this way, we were able to test a number of hypotheses about what drives the creation of value, measured by total return to shareholders (TRS), market-to-book value, and pre-tax return on invested capital (ROIC). Data from the last full commodity cycle (1992 to 2003) generated surprising insights.5 ... 

The first finding for the commodity segment is that size does matter. Larger companies had less cyclical (though not higher) returns on invested capital, and the less cydical returns correlated, albeit mildly, with higher total returns to shareholders. These companies were not only able to cut their production costs, but also had suffidendy diversified offerings - and therefore sufficiently stable cash flows - to weather cycles for individual products. 

Diversified companies presented a much more puzzling picture during the last cycle. In terms of total return to shareholders, surprisingly, diversified chemical companies performed best among the industry subgroups from 1992 onwards. 

In terms of total returns to shareholders (TRS), too, the chemical industry has proved its staying power in recent years. Although it suffered badly during the Asian crisis, and the ensuing technology and Internet bubble at the end of the twentieth century did not bolster chemical stocks and at the same time lured investors away from more traditional plays, the new millennium has seen the chemical industry continuing to deliver TRS that is almost in line with the market (Fig. 5.1). 

TotalFinaElf 6, 24 Trade patterns 4, 39 Trading chemical contracts 32 Transfer of skills, 179 Transfer of technology 179 Transitional challenges, 90-92 Transnational organization 122 TRS. see Total Return to Shareholders... 

The market s predictions on whether mergers and acquisitions will be successful are based on wild guesswork. In fact, the reverse is true. Empirical evidence shows that the expected value creation of a merger (as measured by the Total Return to Shareholders (TRS) of the relevant companies in the period from five days before the announcement of the deal to five days after) correlates strongly with the actual value realized, as measured by the TRS of the relevant companies over a period of several years, discounting the value creation of the market as a whole over the same period. 

The Total Return to Shareholders for a particular period can be broken down into three main elements ... 

As a result, the stock market performance of specialty chemical companies has lagged behind that of earlier periods. In fact, very few specialty chemical companies have done well over the last five years, as measured by their total return to shareholders or their market-to-book ratio, and very few have outperformed the pack in that period. This, in turn, has led to slower share price growth for the industry as a whole relative to broader market indices (Figs. 5.2-5.4). 

Value creation can be estimated by the development of the total return to shareholders, in terms of both the immediate reaction of shareholders in the first 5 days after the announcement and the long term development of a stock 2 to 3 years after integration. The first of these mirrors the financial markets expecta-... 

Change in total return to shareholders relative to index two to three years before and after announcement of the merger change in TRS performance five days before and after announcement of the merger Source McKinsey... 

The results were revealing. We found that there is no statistically significant difference between the performance of more cycHcal and less cyclical companies either in terms of total returns to shareholders or ratio of market value to invested capital (Fig. 16.8). 

Before exploring what we can do in supply chain and operations to help create a profitable, competitive, and valuable company, we need to identify a company s overarching purpose and what is important to CEOs. Primarily, the central purpose of a company is to increase shareholder value. Total return to shareholders (TRS) is frequently used to measure management and company performance. From a CEO s perspective, there is pressure to show returns to shareholders that either meet or exceed shareholder expectations and achieve above-average earnings compared to competitors. If they don t, share price is likely to fall due to unfavorable reviews from financial analysts. CEOs report to numerous audiences, such as ... 

Each audience has its own criteria for evaluating success. In addition, many other criteria and financial performance measures are reported and used to gauge company performance. Besides total return to shareholders, other common measures used to evaluate a company and its executive management team include ... 

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