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What is Total Return and how do companies make financial decisions based on it?

What is Total Return and how do companies make financial decisions based on it?

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Total Return is the increase from an investment, typically expressed in percentage form. Total return, measures the performance and is the actual rate of return upon the investments over a given evaluation period. Total return usually includes interest, capital gains, dividends and distributions realized over a given period of time.

Total Return when typically expressed in percentage form can be put as:

Total Return = Net Return ÷ Initial Investment

Total return determines an investment’s true growth over time and used when analyzing a company’s historical performance and calculating the expected future return on reasonable expectations of the investor’s investments. An investor has to keep two other factors in mind; time and risk. The Investor also has to list all the possible options that an Investment avenue can pursue, estimating the numbers (initial investment, gross return, timing, and risk), rank the options from greatest return to least return.

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