Cal­cu­lat­ing re­turns

Finweek English Edition - - COVERSTORY -

IT’S PROB­A­BLY WORTH not­ing makes use of McGre­gor BFA’s to­tal re­turn cal­cu­la­tions to de­ter­mine the per­for­mance of our stock re­turns over a year. Com­par­ing our per­for­mance(s) to the per­for­mance of the JSE’s All Share in­dex is there­fore not re­ally a fair com­par­i­son – al­though, to be hon­est, the ALSI re­mains the best way for our writ­ers to bench­mark port­fo­lios.

In cal­cu­lat­ing a to­tal re­turn for com­pa­nies over any given pe­riod, it’s nec­es­sary to in­clude all rel­e­vant cor­po­rate ac­tions in this cal­cu­la­tion. The fol­low­ing cor­po­rate ac­tions are there­fore in­cluded in the cal­cu­la­tion: cash div­i­dends, cap­i­tal­i­sa­tion is­sues, share con­sol­i­da­tions, cap­i­tal pay­ments, spe­cial div­i­dends, in­ter­est pay­ments, scrip div­i­dends, sub-di­vi­sions, rights of­fers and un­bundlings. For ex­am­ple, Lib­erty In­ter­na­tional – which fea­tured strongly in our 2010 picks – was split into two sep­a­rate coun­ters: Cap­i­tal Shop­ping Cen­tres and Cap­i­tal & County Prop­er­ties. Rem­gro un­bun­dled its hold­ing in di­a­mond miner Trans Hex Group.

In cal­cu­lat­ing the to­tal re­turn, we start with 100 shares. The 100 shares are then ad­justed with each cor­po­rate ac­tion on the ef­fec­tive day. As an ex­am­ple, if a div­i­dend is de­clared, the div­i­dend is rein­vested on the pay­ment day by buy­ing

AV­ER­AGE RE­TURN: ad­di­tional shares. All other cor­po­rate ac­tions are treated in a sim­i­lar way by buy­ing ad­di­tional shares with the value cre­ated re­sult­ing from the cor­po­rate ac­tion.

The ad­justed num­ber of shares is then mul­ti­plied daily with the nor­mal clos­ing price as per the JSE, re­sult­ing in an ad­justed value for the orig­i­nal 100 shares. Di­vid­ing that ad­justed to­tal value by 100 re­sults in a to­tal cor­po­rate ac­tions ad­justed price per share.

The re­turn for each share is cal­cu­lated by us­ing the ad­justed price per share as at 15 De­cem­ber 2009 and that of 14 De­cem­ber 2010. The re­turn quan­ti­fied in that way then not only rep­re­sents the move­ment in the share price it­self but also the ad­di­tional value cre­ated for the share­holder by way of all rel­e­vant cor­po­rate ac­tions.

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