This PPT slide, part of the 101-slide Complete Guide to Value Creation PowerPoint presentation, presents a critical analysis of return on investment (ROI) versus total shareholder return (TSR), emphasizing the importance of understanding these metrics from an investor's perspective. It highlights that traditional value-based management (VBM) approaches often focus narrowly on achieving ROI above the cost of capital. However, this approach may not adequately reflect the true value creation for investors.

The text outlines that investors aim to invest in companies that exceed performance expectations already embedded in the stock price. The slide suggests that companies with low ROI that manage to improve their ROI are more favorable investments compared to high ROI companies that show stagnant performance. This indicates a dynamic view of ROI, where improvement is more valuable than static high returns.

The accompanying charts illustrate the past five-year average ROI and the projected next five-year TSR, providing a visual representation of the relationship between these metrics. The message is clear: a high ROI does not automatically equate to a superior TSR. Investors must look for companies that not only maintain high ROI, but also demonstrate growth in their returns above expected levels, or those that come with greater anticipated reinvestment growth.

The concluding statement reinforces the idea that high ROI businesses cannot remain complacent, as their performance may deteriorate if they fail to improve ROI expectations. Conversely, low ROI businesses have the potential to enhance their attractiveness if they can demonstrate significant improvements. This nuanced understanding of ROI and TSR is crucial for investors making informed decisions.

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Shareholder Value