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1. Earnings per share (EPS): -
What is EPS in simple terms?
Earnings per share (EPS) is a measure of a company's profitability, calculated by dividing quarterly or annual income (minus dividends) by the number of outstanding stock shares. The higher a company's EPS, the greater the profit and value perceived by investors.
What is the basic formula for EPS?
Basic EPS = (Net income - preferred dividends) /weighted average of common shares outstanding during the period.Net income can be further broken down into 'continuing operations' P&L and 'total P&L' and preferred dividends should be removed as this income is not available to common stockholders.
2.PE Ratio: -
P/E Ratio or Price to Earnings Ratio is the ratio of the current price of a company’s share in relation to its earnings per share (EPS). Analysts and investors can consider earnings from different periods for the calculation of this ratio; however, the most commonly used variable is the earnings of a company from the last 12 months or one year. It is also referred to as price multiple of earnings multiple.
What is P/E Ratio Formula?
P/E Ratio = (Current Market Price of a Share / Earnings per Share)Price to Earnings Ratio is one of the most widely used metrics by analysts and investors across the world. It signifies the amount of money an investor is willing to invest in a single share of a company for Re. 1 of its earnings. For instance, if a company has a P/E Ratio of 20, investors are willing to pay Rs. 20 in its stocks for Re. 1 of their current earnings.
Hence, when a company demonstrates a high P/E Ratio, it means that either the company is overvalued or is on a trajectory to growth. Another interpretation of a high P/E ratio could be that such a company is expected to have increased revenue in the future and speculation of the same by analysts and investors has led to a surge in its current stock prices.
On the other hand, a low Price to Earnings Ratio signifies undervaluation of stocks, due to any systematic or unsystematic risk of the market. Considering a different interpretation of a low P/E ratio, it could also signify that a company shall perform poorly in the future due to its stock prices falling in the present.
Hence, when a company demonstrates a high P/E Ratio, it means that either the company is overvalued or is on a trajectory to growth. Another interpretation of a high P/E ratio could be that such a company is expected to have increased revenue in the future and speculation of the same by analysts and investors has led to a surge in its current stock prices.
On the other hand, a low Price to Earnings Ratio signifies undervaluation of stocks, due to any systematic or unsystematic risk of the market. Considering a different interpretation of a low P/E ratio, it could also signify that a company shall perform poorly in the future due to its stock prices falling in the present.
3.Book Value: -
What is the Booking Value?
Booking value, more commonly known as book value, is an organization’s worth according to its Balance Sheet. In another sense, it can also refer to the book value of an asset that is reached after deducting the accumulated depreciation from its original value.
For instance, if a piece of machinery costs Rs. 2 lakh and its accumulated depreciation amount to Rs. 50,000, then the book value of that machinery would come about to be Rs. 1.5 lakh.
The book value of an organization is computed after netting the aggregate book value of all the assets against its intangible counterparts and liabilities. In a roundabout way, it is the book value of shareholder’s equity.
This is so important to investors is because it provides a concrete knowledge of a company’s value if all its assets were to be liquidated and all liabilities settled. Common shareholders are at the bottom rung when it comes to payout in the event of liquidation of an organization. Thus, its book value represents the amount such investors ought to receive at any point in time.
How to Calculate Book Value?
Book value is calculated by taking the aggregate value of all its assets and deducting all the liabilities from it. Assets include both current and fixed assets, and liabilities include both current liabilities and non-current liabilities.Therefore, the book value formula can be expressed as:
Book value = Total Assets – Total Liabilities
In some practices, investors and analysts exclude intangible assets when evaluating book value, since, their value cannot be realized during the liquidation of a business. In that case, the book value formula would be expressed as:
Book value = Total Assets – (Intangible Assets + Total Liabilities)
Book value = Total Assets – Total Liabilities
In some practices, investors and analysts exclude intangible assets when evaluating book value, since, their value cannot be realized during the liquidation of a business. In that case, the book value formula would be expressed as:
Book value = Total Assets – (Intangible Assets + Total Liabilities)
Book value per share (BVPS):-
Book value per share (BVPS) takes the ratio of a firm's common equity divided by its number of shares outstanding. Book value of equity per share effectively indicates a firm's net asset value (total assets - total liabilities) on a per-share basis.
4.Divident Yield: -
What does dividend yield means?
Dividend yield is a stock's annual dividend payments to shareholders expressed as a percentage of the stock's current price.
How do I calculate dividend yield?
The formula to calculate dividend yield is a fairly simple one, and you don't need any special math or financial training to be able to do it for any dividend stocks you own. All you have to do is divide the annual dividend by the current stock price, and you'll get the dividend yield.5. Net profit margin: -
What is the net profit margin?
Net profit margin is the percentage of total income you get to keep after all expenses and taxes are paid. A big chunk of your income will be used to cover business expenses and square up with the tax office. The portion of income that's left at the end is your net profit margin.
What if the net profit margin is negative?
A negative profit margin is when your production costs are more than your total revenue for a specific period. This means that you're spending more money than you're making, which is not a sustainable business model. Many companies have negative profit margins depending on external factors or unexpected expenses.How is net profit calculated?
Net Profit = Total Revenue – Total ExpensesTo calculate Net profit of a company, its total expenses are deducted from the total revenue it generates.
6. Standalone vs Consolidated Financial Statements: -
What is Standalone Financial Statement?
A standalone financial statement offers insights into the financials of a single business. So, if a company has multiple businesses, then a standalone statement of the company will offer details of the financial performance of that particular company.
If you want to know how all the businesses of the company have impacted its performance, then you can look at its consolidated statements.
What is Consolidated Financial Statement?
A consolidated financial statement offers insights into the financials of a company including its holding and/or subsidiary companies. Hence, if you are analyzing the statements of a large organization, then a consolidated statement offers a better picture of the performance of all the companies put together.What’s the Difference Between Standalone and Consolidated Financial Statement
Below image shows the details of comparison: -
7. Free Cash Flow: -
What is free cash flow in simple terms?
Free cash flow tells you how much cash a company has left over after paying its operating expenses and maintaining its capital expenditures—in short, how much money it has left after paying the costs to run its business.How is FCF calculated?
What is the Free Cash Flow (FCF) Formula? The generic Free Cash Flow (FCF) Formula is equal to Cash from Operations minus Capital Expenditures. FCF represents the amount of cash generated by a business, after accounting for reinvestment in non-current capital assets by the company.8.The Relative Strength Index(RSI):-
The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum
oscillator that measures the speed and change of price movements. The RSI oscillates between
zero and 100.
Traditionally the RSI is considered overbought when above 70 and oversold when below 30.
oscillator that measures the speed and change of price movements. The RSI oscillates between
zero and 100.
Traditionally the RSI is considered overbought when above 70 and oversold when below 30.
9.Moving average convergence/divergence(MACD) :-
Moving average convergence/divergence (MACD) is a technical indicator to help investors identify market entry points for buying or selling. The MACD line is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The signal line is a nine-period EMA of the MACD line.
MACD Indicator
10.Money Flow Index(MFI):-
The Money Flow Index (MFI) is a technical oscillator that uses price and volume data for identifying overbought or oversold signals in an asset.
FII & DII: -People buying in small quantities are retail investors. Local bulk buyers are Domestic Institutional Investors or DII, and people from different countries are Foreign Institutional Investors or FIIs. Institutional investors like DII and FII play a significant role in the stock market
FII & DII: -People buying in small quantities are retail investors. Local bulk buyers are Domestic Institutional Investors or DII, and people from different countries are Foreign Institutional Investors or FIIs. Institutional investors like DII and FII play a significant role in the stock market
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