TERMINOLGIES IN EQUITY MARKET

 

• FACE VALUE
  • Face value is the value of share when it started
  • This value gets locked and one finds this value in
    share certificates of the company irrespective of
    what is its book value or market value
  • Face value only changes when there is stock split or
    stock consolidation
• MARKET VALUE
  • The value which market assigns to company
    based on various factors like – performance,
    sentiments, future expectations, liquidity, etc of
    company’s equity
  • Market Value can be sought as worth of
    company assigned by Market Participants
• BOOK VALUE
  • It is the net worth of company
  • Book value of equity is the worth of Equity Capital in
    Company’s balance sheet
  • Book value of Equity = Total assets – Total liabilities
  • Book value of each item is not affected by its Market
    value or Fair value
• REPLACEMENT VALUE
  • Numerical value can be derived by measuring
    Market Value of Total Assets
  • Today’s Cost of setting up a Duplicate
    company, similar – structure, assets, moats,
    etc
• MARKET CAPITALISATION
  • Market value of shares * No of outstanding shares
  • = Market Capitalisation
  • Company has
  • Market value = ₹ 200 ; outstanding shares =
  • 1,00,000
  • Market Cap = 200*1,00,000 = ₹2 Crore
  • Categorisation
  • Large Cap
  • Largest companies by Market Cap – Blue Chip
    companies
  • Generally top 50-100 companies
    Mid Cap
  • next largest to Blue chip companies by market
    cap
  • generally next 200-500 companies
    Small Cap
  • Rest all the remaining companies
    Larger the Market Cap of the company more
    mature it is and enjoy more liquidity because all
    investors are keen on investing
• INTRINSIC VALUE
  • Present Value of share’s future benefits to investor
  • Numerous ways to calculate and very subjective after
    all it is an estimated number
  • common method is Discounted cash flow method
• ENTERPRISE VALUE
  • Overall value of the company
  • If one were to buy the whole company it would have to
    buy its Equity and Debt
  • EV = Value of common equity + value of non-controlling
    interest + Value of preferred capital + Debt – cash, cash
    equivalents and financial investments
  • All the values would be market value
• EARNINGS – Historical, Trailing, Forward
  • Returns earned by the company through their operation;
  • Revenue – Cost = Earning
  • Historical – Previous year earnings
  • Trailing – Earning of last 4 Quarter
  • Forward- Future Projected earnings
• EARNING PER SHARE P/E RATIO
  • Earning per share: profit earned
  • on per share basis
• P/E RATIO
  • P/E ratio – Market price per share/ Earnings per share
  • It tells us how much are we paying for per rupee of
    earning
  • one of the common tools in valuation
  • p/e ratio is based on trailing earning + anticipated
    earning
  • if trailing earnings per share =25 ; stock price = 100
    p/e = 100/25 = 4
  • if anticipated earning per share = 32; stock price= 100
    p/e = 100/32= 3.125
  • if only p/e is given, trailing p/e = 4, forecasted p/e=
    3.125
    we can say we expect an increase in future income
  • used in relative valuation too – if walnut co & almond co.
    operating in same business
    walnut p/e : 12, almond p/e: 15 – market is paying higher
    price for Almond co.
• P/S RATIO
  • P/S RATIO= Price per share/sales per share
  • p/s ratio = market cap/annual sales
  • measures price for per rupee of sale
  • A relative valuation metric often used when
    companies are going through negative earnings
    period
  • if orange co. has p/s : 2.5 & watermelon co. has
    p/s ratio 3.8
    people are paying higher price for watermelon co.
• DIVIDEND PER SHARE
  • Company usually declare dividend on per share basis
  • Usually measured in terms of percentage of Face value
  • Face value = 15; Dividend = 3; Dividend is 20% (3/15)
  • Multiples help us compare companies with its peer
  • irrespective of their size or numbers in absolute terms
• DIFFERENTIAL VOTING RIGHTS
  • Share with no voting rights
  • when companies want to raise capital but doesn’t want to lose decision making this is issued
• PRICE TO BOOK VALUE
• It is a popular relative valuation metric and often used where P/E is not reliable
• used to measure how much premium or discount company is trading to its book value
• generally a p/bv less than 1 is undervalued showing company is trading even less than its balance sheet net
  worth; but not always, there could be various reasons behind poor market performance
• only reliable where company doesn’t have high intangible assets

Source: https://investmentmantra100.wordpress.com/