S&P 500 corporations are in the business of managing other people's money — the debt holders and the shareholders.
To measure how effective these corporations are in achieving this goal, Wall Street uses the Total Shareholder Returns (TSR). It measures the shareholder returns of each corporation stock over a specified period as the sum of market gains and dividends. Then, it compares these returns to the S&P 500 index gains to determine whether the corporation overperformed or underperformed the market.
However, TSR has a couple of limitations as a valuation metric. First, it is conducive to financial engineering, like the sale of debt to purchase shares, which could boost short-term performance at the expense of long-term performance.
