The assessment of investment performance from the perspective of equity holders involves quantifying the overall return received, inclusive of both capital appreciation and distributions. This computation encompasses the change in a company’s stock price over a specified period, augmented by any dividends paid during that same interval. For example, if a share is purchased for $100, appreciates to $110 over a year, and pays a $5 dividend during that year, the total return is $15, representing a 15% return on the initial investment.
This metric is valuable for evaluating management effectiveness in creating shareholder wealth. It provides a comprehensive view, reflecting not only growth in the company’s stock value but also the income generated for investors. Historically, it has served as a benchmark for comparing the performance of different companies within the same industry or against broader market indices, aiding investors in making informed allocation decisions and holding executives accountable.