Understanding ROI and TSR: Investor Insights PPT

This PPT slide, part of the 31-slide Value Creation Framework Series: Direct Levers PowerPoint presentation, presents a critical analysis of the relationship between Return on Investment (ROI) and 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 focus primarily on achieving an ROI above the cost of capital. However, this narrow focus may not align with investor expectations, which extend beyond mere ROI figures.

The left chart illustrates the average ROI over the past 5 years across different quartiles of the S&P 500, indicating that companies with lower ROI can still be attractive investments if they show potential for improvement. The right chart forecasts the TSR for the next 5 years, suggesting that simply having a high ROI does not guarantee superior TSR. Investors are more interested in companies that can enhance their ROI beyond expected levels or demonstrate significant reinvestment growth.

The text also underscores a key takeaway: high ROI businesses cannot remain complacent. They must continuously strive for improvement, while low ROI businesses have the opportunity to enhance their attractiveness by increasing their ROI. This nuanced understanding of ROI and TSR is essential for investors aiming to make informed decisions about their investments.

The slide serves as a reminder that performance metrics should be viewed holistically, considering both historical data and future potential. Investors must look beyond surface-level ROI figures to assess the true value and growth prospects of a company.

This slide is part of the Value Creation Framework Series: Direct Levers PowerPoint presentation.

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