Question

3. What are the potential reasons why TRS over short periods of time may not reflect theactual performance of a company and its managers?

Answer 1

TRS is the short form of the total return of the shareholders of a firm. Short Periods of time of a firm is usually considered as less than 12months in the year. Now there are several reasons in which the TRS might not indicate the true value of the firm, policy changes in the economy is the first reason which might lower the overall revenue earnings of the firm thereby lowering the potential growth of the stock., next in line could be the rise in the interest rates in the economy which holds back the growth, erroneous anticipations from long-term projects might lead to an immediate downturn in the returns of the stockholder’s wealth. Rising Prices or Inflation could be another potential reason which might hold back the prices of the stock to soar higher.