Where does it come from? Return to shareholder measures how a company creates wealth for its shareholders (irrelevant to the market price) and whether its management works to maximize its shareholders’ benefit. The main criteria start from: Should its management invest more in the company? If not, should they pay off the company’s debts? If not, should they buy back the stocks? And finally, how appropriate is the dividend payout ratio?
Each component must be analyzed to determine whether each management decision is made to maximize the shareholders’ benefit. Actually, Return to Shareholder can be a measure of the company’s Corporate Governance as well. A good score means the management is honest, transparent and works to maximize the shareholders’ benefit.