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Terminology In Equity And Debt Market

      👉 In this blog we are going to discuss about some terminology and terms which are required to understand company or analyze a company.

1) Face Value: -

               Face value is defined as the nominal price of a share, or it is also defined as the price in which company is listed in the stock exchange.

2) Book Value: -

                Book value is considered as the net worth of the company.

           Book Value = Net Worth Of The Company / No. Of Outstanding Share 

3) Replacement Value: -

                         This refers to the market value of all assets of the company at any point of time for example ·Shares, ᐧ Infrastructure etc.

4) Intrinsic Value: -

                      Intrinsic value of an asset is the present value of expected free cash flow from the assets.

         ~ According to the WARREN BUFFETT intrinsic value of the cash that can be taken out of the business during its remaining life.

                   Intrinsic value defines future potential on expected price of that company -

    - If intrinsic value is higher, then company is considered as undervalued.

    - If intrinsic value is lower, then company is considered as overvalued.

* Intrinsic value is expected term and is not certain.

5) Market Cap.: -

It is the amount of money required to buy out an entire company at its correct market price.

       Market Cap. = Total no. of underlying shares * Current market price of share.

6) Enterprises Value: -

Enterprises value is the theoretical takeover price of a firm along with equity, it considers the debt as well as the cash reserves of company in determining the value.

      or: -     Enterprises value is the total value of company defined in terms of its financing. It includes both the current share price (market cap.) and the cost to pay off debt (net debt or debt minus cash)

  EV (or enterprises value) can be defined as mathematically as follows -

          Enterprises Value = Market Value of equity (market capitalization) +market value of debt - cash and cash equivalent.

* Cash and cash equivalent = IN hand cash or asset that can be converted into cash within one year.

For Example: -

  Market Cap. = 20 lakh

Total Debt =3 lakh

Cash = 4 lakh

then, EV = 20 lakh + 3 lakh - 4 lakh.

7) EPS (Earning Per Share): -

Net profit of the company belong to shareholders earnings per share is the net profit divided by the number of shares. It indicates the amount of profit that company has earned, for every share it has issued.

EPS is calculated as: -

              EPS = NET PROFIT / NUMBER OF OUTSTANDING SHARE 

 8) Dividend Per Share: -

Dividend is declared in terms of percentage; this percentage is of the face value of the company.

*If you want to become value investor then you surely get to know about this.

If dividend yield is less than one (>1) of a company, then it means the company is giving less dividend in comparison of its market value (share value).

9) Price to Earnings Ratio: -

                          It's the most used parameter to know that is stock undervalued or overvalued in comparison of stock's peer. 

It is calculated as: -

              *   P/E =Market Price Per Share / Earning Per Share 

10)  Price To Sales Ratio -

Price to sales ratio is a valuation ratio that measures the price investor is willing to pay for each rupee of sales.

      *P/S RATIO = Current Market Price / Annual Net sales Per Share     

            or 

      * P/S RATIO = Market capitalization / Annual Net sales

11) Price To Book Ratio: -

The price to book ratio (or P / BV) measures the company's current market price vis-a-vis its book value.

        *Lower the P / BV value the better the company or the company is at its fair price.

  * P / BV greater than 3 or higher could signal a market value that's too high and may be ready to fall.

               * P / BV = Current Market Price / Book Value


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So that's it for today there are so many more things to discuss so stay tuned for upcoming blogs where we going to discuss about some analysis that is Economic Analysis, Industry Analysis, SCP (Structure Conduct Performance) analysis and many more so stay tune and do share this one with your mates.

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                THANK YOU 




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