1.
27 KEY STOCK MARKET
TERMS THAT EVERY
BEGINNERS SHOULD KNOW.
TRADE BRAINS

2.
PROMOTER’S SHARE
The company shares that are owned by the promoters i.e. the
owners of the company is called Promoters shares. The public
cannot own these shares.
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3.
OUTSTANDING SHARE
• The company shares that are owned by the shareholders but not
promoters are called the outstanding shares.
• Therefore, outstanding shares are those shares, which are available for
the public for trading.
• Public (retail investors), foreign institutional investors (FII), Domestic
institutional investors (DII), mutual funds etc. can own outstanding shares.
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4.
MARKET CAPITALISATION
• Market Cap or Market capitalization refers 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 company outstanding
shares.
Market Capitalization = No of outstanding shares * share value of each stock
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5.
BOOK VALUE
• It is the ratio of total value of company assets to the no of
shares. In general, this is the value which the shareholders
will get if the company is liquidated.
• Hence, it is always preferred to buy a stock with high book
value compared to the current share price.
Book Value = [Total assets – Intangible assets (patents,
goodwill..) – liabilities]/ No of shares
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6.
EARNINGS PER SHARE (EPS)
• 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)/
(Average outstanding shares)
• From the prospective 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.
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7.
PRICE TO EARNINGS RATIO (PE)
The Price to Earnings ratio is one of the most widely used financial
ratio analysis among the investors for a very long time.
A high P/E ratio generally shows that the investor is paying more for
the share. The P/E ratio is calculated using this formula:
Price to Earnings Ratio= (Price Per Share) / ( Earnings Per Share)
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8.
PRICE TO BOOK RATIO (PB)
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.
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)
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9.
MARKET LOT
It is the minimum no of shares required to purchase or sell to
carry a transaction.
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10.
FACE VALUE
It is the price of the stock written in 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.
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11.
DIVIDEND %
This is the ratio of the dividend given by the company to the
face value of the share.
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12.
DILUTED EPS
If all the convertible securities such as convertible preferred
shares, convertible debentures, stock options, bonds etc. are
converted into outstanding shares then the Earnings per share is
called Diluted earnings per share. The less the difference between
Basic and diluted EPS the more the company is preferable.
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13.
CASH EPS
This is the ratio of cash generated by company per diluted
outstanding share. If Cash EPS is more the more the company is
preferred.
Cash EPS = Cash flows / no of diluted out standing shares
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14.
PROFITS
• PBDIT: Profit before depreciation, interest and taxes.
• PBIT: Profit before interest and taxes
• PBT: Profit before taxes
• PBDIT margin: It is the ratio of PBDIT to the revenue
• Net profit margin: – It is the ratio of Net profit to the revenue
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15.
ASSETS
Asset is an economical value that a company controls with
expectation that it will provide future benefit.
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16.
LIABILITY
It is an obligation that company has to pay in future due to its
past actions like borrowing money in terms of loans for
business expansion purpose.
Assets = Liabilities + Shareholders equity
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17.
ASSET TURNOVER RATIO
It is calculated by dividing revenue to the total assets.
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18.
DEBT TO EQUITY RATIO
The debt-to-equity ratio measures the relationship between the amount of
capital that has been borrowed (i.e. debt) and the amount of capital
contributed by shareholders (i.e. equity).
Generally, as a firm’s debt-to-equity ratio increases, it becomes more risky.
A lower debt-to-equity number means that a company is using less
leverage and has a stronger equity position.
Debt to Equity Ratio =(Total Liabilities)/(Total Shareholder Equity)
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19.
RETURN ON EQUITY (ROE)
Return on equity (ROE) is the amount of net income returned as a percentage
of shareholders equity.
Return on equity measures a corporation’s profitability by revealing how much
profit a company generates with the money shareholders have invested.
In other words, ROE tells you how good a company is at rewarding its
shareholders for their investment.
Return on Equity = (Net Income)/(Average Stockholder Equity)
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20.
PRICE TO SALES RATIO (PS)
The stock’s price/sales ratio (P/S) ratio measures the price of a
company’s stock against its annual sales. 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)
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21.
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)
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22.
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.
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23.
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 stock and is expressed in annual
percentage.
It can be distributed quarterly or annually basis and they can issue in the form cash
or stocks.
Dividend Yield = (Dividend per Share) / (Price per Share)*100
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24.
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