The expectations treadmill |
McKinsey Classics | March 2017 |
![The problem with TRS](http://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Measuring%20stock%20market%20performance/034_Measuring_stock_market_performance__456562849_Original.ashx?mw=768&car=16:9) |
The problem with TRS |
The US stock market has been testing record highs. But do short-term share prices and total returns to shareholders (TRS) truly reflect a company’s long-term prospects? TRS measures performance against the financial markets’ changing expectations. Companies that consistently meet high performance standards can find it hard to deliver high TRS: the markets may think that management is doing a great job, but this belief has already been factored into share prices. Two other metrics—market value added and the market-value-to-capital ratio—can compensate for these deficiencies. To learn more, read the classic 2005 article “Measuring stock market performance.” |
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