Key Financial Terms and Fundamentals of Stock Market

1. 20 23 TRADE BRAINS KEY FINANCIAL TERMS AND FUNDAMENTALS OF STOCK MARKET

2. Key Financial Terms and Fundamentals of Stock Market Must Know Terms BY TRADE BRAINS Investment Basics

3. Hello and Welcome! The PDF covers essential financial terms and fundamentals vital for stock market investors. It explains concepts such as "Promoter's Shares" and "Outstanding Shares" related to ownership. "Market Capitalization" is discussed as a measure of a company's size. The significance of "Book Value" and "Earnings Per Share (EPS)" as key profitability ratios is emphasized. The widely-used "Price to Earnings Ratio (P/E)" and other financial ratios like "Price to Book Ratio (P/B)" and "Dividend Yield" are explained. The PDF aims to provide readers with a foundational understanding of crucial stock market concepts in a concise manner.

4. Fundamentals of the Stock Market Introduction Here are a few key financial terms that a stock market investor must know. Although the list is long, it will be worth knowing these terms to get a good grasp on the fundamentals. Here it goes: Promoter’s Shares: The company shares that are owned by the promoters, i.e. the owners of the company, are called Promoter's shares. The public cannot own these shares. Outstanding Shares: The company's shares are owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders. Public (retail investors), foreign institutional investors (FII), domestic institutional investors (DII), mutual funds, etc. can own outstanding shares.

5. Market Capitalization: Market Cap or Market capitalization refers to the total market value of a company's outstanding shares. It is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to using sales or total asset figures. In general, market capitalization is the market value of the company's outstanding shares. Market Capitalization = No of outstanding shares * share value of each stock Book Value: It is the ratio of the total value of company assets to the number of shares. In general, this is the value that the shareholders will get if the company is liquidated. Hence, it is always preferred to buy a stock with a high book value compared to the current share price. Book Value = [Total assets – Intangible assets (patents, goodwill..) – liabilities] Earnings Per Share (EPS): This is one of the key ratios and is really important to understand before we study other ratios. EPS is the profit that a company has made over the last year divided by how many shares are on the market. Preferred shares are not included while calculating EPS. In general, Money earned per outstanding shares. Earnings Per Share (EPS) = (Net income – dividends from preferred stock)/(Total outstanding shares) From the perspective of an investor, it is always better to invest in a company with higher EPS as it means that the company is generating greater profits

6. Price to Earnings Ratio (P/E): The Price to Earnings ratio is one of the most widely used financial ratio analyses among investors for a very long time. A high P/E ratio generally shows that the investor is paying more for the share. As a thumb rule, a low P/E ratio is preferred while buying a stock, but the definition of 'low' varies from industry to industry. So, different sectors (Ex automobiles, Banks etc) have different P/E ratios for the companies in their sector, and comparing the P/E ratio of the company of one sector with the P/E ratio of the company of another sector will be insignificant. However, you can use the P/E ratio to compare the companies in the same sector, preferring one with low P/E. The P/E ratio is calculated using this formula: Price to Earnings Ratio= (Price Per Share) / ( Earnings Per Share) I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful. It's easier to find the price of the share as you can find it from the current closing stock price. For the earnings per share, we can have either trailing EPS (earnings per share based on the past 12 months) or Forward EPS (Estimated basic earnings per share based on a forward 12-month projection. It's easier to find the trailing EPS as we already have the result of the past 12 month's performance of the company. - BY WARREN BUFFETT

7. Price to Book Ratio (P/B): The Price to Book Ratio (P/B) is calculated by dividing the current price of the stock by the latest quarter's book value per share. The P/B ratio is an indication of how much shareholders are paying for the net assets of a company. Generally, a lower P/B ratio could mean that the stock is undervalued, but again the definition of lower varies from sector to sector. Price to Book Ratio = (Price per Share)/(Book Value per Share) Dividend Yield: It is the portion of the company earnings decided by the company to distribute to the shareholders. A stock's dividend yield is calculated as the company's annual cash dividend per share divided by the current price of the stoke and is expressed in annual percentage. It can be distributed quarterly or annual basis and they can issue in the form of cash or stocks. Dividend Yield = (Dividend per Share) / (Price per Share)*100 For Example, If a company's share price is Rs 100 and it is giving a dividend of Rs 10, then the dividend yield will be 10%. It totally depends on the investor whether he wants to invest in a high or a low-dividend-yielding company.

8. Market Lot: It is the minimum number of shares required to purchase or sell to carry a transaction. Dividend %: This is the ratio of the dividend given by the company to the face value of the share. Basic EPS: This is nothing but Earnings per share. PBDIT: Profit before depreciation, interest, and taxes. PBIT: Profit before interest and taxes. PBDIT Margin: It is the ratio of PBDIT to the revenue. Net Profit Margin: It is the ratio of Net profit to revenue. Face Value: It is the price of the stock written in the company's books when issued during IPO. It is the amount of money that the holder of a debt instrument receives back from the issuer on the debt instrument's maturity date. Face value is also referred to as par value or principal. Price to Sales Ratio (P/S): The stock's price/sales ratio (P/S) ratio measures the price of a company's stock against its annual sales. The P/S ratio is another stock valuation indicator similar to the P/E ratio. Price to Sales Ratio = (Price per Share)/(Annual Sales Per Share) A P/S ratio is a great tool because sales figures are considered to be relatively reliable while other income statement items, like earnings, can be easily manipulated by using different accounting rules.

9. Current Ratio: Current ratio is a key financial ratio for evaluating a company's liquidity. It measures the proportion of current assets available to cover current liabilities. It is a company's ability to pay its short-term liabilities with its short- term assets. If the ratio is over 1.0, the firm has more short-term assets than short-term debts. But if the current ratio is less than 1.0, the opposite is true and the company could be vulnerable. Current Ratio = (Current Assets) / (Current Liabilities) Quick Ratio: The name itself tells quick means how well the company can meet its short-term financial liabilities. The quick ratio is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities. We hope this article about key financial terms has helped you get a better insight into the stock that you want to invest in, and this will also help you make better investing decisions. Check out Trade Brains Portal for stock analysis, superstar portfolio, and more. Happy Investing.

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