STOCK'S KNOWS

Monday, April 30, 2018

10 Most Important Fundamental Parameters of a Company.

Fundamental Analysis,
10 Most Important Fundamental Parameters of a Company.
Hey friends, welcome to 2nd article of fundamental analysis of Stock’s Knows. In this article, we will know 10 Most Important Fundamental Parameters of a Company.

1)Market Capitalization (Market Cap):
Market cap is a representation of a value of a company in the market. Higher the market Cap larger the company’s size. Market Cap is calculated by multiplying a company’s share price with its total number of outstanding shares in the market.
i.e.If a company’s share price is Rs.100/share and a number of outstanding shares in the market are 100 then Market Cap of a company will have calculated:

Market Cap = (Price of a share x Total Number of Outstanding Shares)
          =(100x100)
          = Rs.10000

Total Value of that company in market is  Rs.10000.Companies also categorized in terms of market cap: Large Cap, Mid Cap, Small Cap.

Large-cap companies are large size companies, which are in their businesses from decades or some from a century. Hence, they are less risky as compare to any other.

Mid Cap companies are larger than Small Cap companies but smaller than Large-cap companies. They are less risky than Small Cap companies but riskier than large-cap companies.

Small Cap Companies are smaller in size. They are higher riskier than both above types of companies.


  2)Book Value:
  Book value is another type of the value of a company. It is a value as per company’s books. It is the difference between a company’s total assets and total Liabilities. It is shareholder’s total fund for a company.

If we divide Book Value of a company to a total number of outstanding shares of a company, then we will get Book Value per share of a company. Which is the value of 1 share of a company as per its books?

We can calculate the price to book value per share for a company by dividing a company’s share price with its book value per share. 

 From which we can analyze the price of a company, how much times the price is currently as compared to its book value. Higher the Price to book value, higher the valuation of a company.

  3)Face Value:
   Face Value is the original value of a share, which is printed on share certificate. In previous days shares were issued in certificate form. 1 certificate for 1 share. Now because of regulatory rules, all shares are dematerialized saved in Demat account of Shareholders. In India generally, the face value of a company is between 1 to 1o.


  4)Market Value or Market Price:
  Market price is a company’s current share price as per Stock Exchanges where it is listed. Market value is also the sum of Face Value and Premium given by Market to a share.

 5)Dividend and Dividend Yield: By Investing in shares of a company, one can get benefit from two sides: 1)Dividend  2)Capital Appreciation.

1)Dividend:
  It is some part of a company’s earnings, which is paid to its shareholders on the behalf of taking the risk in that company. 
  
  It is very important to note that paying the dividend is not compulsory, it depends on the company, whether to give dividend or to use that capital to improve company’s growth. A dividend is given as a percentage of a company’s face value. i.e. If a company declares the dividend of 150% and a face value of it is Rs.1 then the company will pay Rs.1.5 per share to its shareholders.

2)Capital Appreciation: 
  It is in terms of increase in share price which is purchased by shareholders. i.e. In June 2016, the per share price of MRF was more than Rs.30000 and now in April 2018, the per share Price of MRF is more than Rs.80000. If someone has invested in money around 2016 then, he or she have made more than 160% money as capital Appreciation.

Another Example: Price of your house Rented to someone gives two incomes: Increase in Price of Property as capital appreciation and Rental Income as Dividend, although rental income does not depend on Paying Guest right, it is decided by you right?

Dividend Yield:
Dividend Yield is represented in terms of percentage. It is the ratio of annual dividend per share and price per share. How much a company paid to its shareholders as a percentage of its share price. 
The higher Dividend yield is attractive for majority people, it is like extra income. Which is attractive.


  6)EPS or Earning per share:
    The most important financial ratio of a company is EPS or Earning per share. It is clear from its name, it is earning per share by a company. 
   It is always for some particular time period. Generally, EPS used of Trailing twelve months or EPS(TTM) which is the sum of EPS of last for Quarter. The formula for calculating EPS for a particular period is as below:
EPS = (Net profit of company / Total Number of outstanding Shares)

  EPS of a company having the net profit of Rs.100 cr and Total Number of shares outstanding 10 cr is EPS= (100/10) = RS.10 per share.

  7)Price to Earnings Ratio or P/E ratio:
  Another most important Ratio is Price to  Earning or P/E ratio, it is defined as the current market price of the share of a company by its EPS or Earning per share of a company. Highest the P/E ratio, richest the valuation of a company.

PRICE TO EARNING OR P/E = (current Market Price of a Share / EPS for that company)

 i.e. P/E of a company having price rs 200 and EPS RS.20 will be P/E =(200/20)=10x (10times)

  8)Industry P/E:
  Industry P/E is PRICE to Earning multiple of the whole industry. By Comparing a company’s P/E ratio with its industry’s P/E one can identify, is company overvalued or undervalued?

  P/E < Industry P/E   Then Undervalued
  P/E > Industry P/E   Then Overvalued
  P/E = Industry P/E   Then fairly valued

  9)Deliverables:
  It is the percentage of delivery from traded quantity for a particular period of time. You can find deliverables for any company at its respected Stock Exchanges. (Exp. NSE, BSE, MCX, NYSE). 
  
  Higher percentage delivery is a good sign for a company for that particular price.

 10)Market Lot:
  It is a minimum quantity of shares which one can able to trade. It is different for the company to company. Generally, in India Market lot is 1 share for most companies (except SMEs (Small and Medium Enterprises)).

 This was 10 most important fundamentals of a company. If you find helpful above information then please Share our articles and Subscribe to the newsletter of our blog.  

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Wednesday, April 25, 2018

Technical Analysis of Stocks : Support and Resistance Levels

Support and Resistance Levels, technical analysis of stocks
Technical Analysis of Stocks : Support and Resistance Levels
Hey friends, welcome to Stock's Knows.

This is the 2nd article of technical analysis of stocks , in our first article of technical analysis of stocks we learned three basic principles of Technical Analysis.

Today we will understand the very basic concept of Technical Analysis of Stocks which is known as Support and Resistance levels.

Before starting about Support and Resistance level we need to understand types of charts used in technical analysis of stocks which are given below:

Three basic chart types:

1) Line Chart:

Line chart looks like a line, it is very simple and basic representation of chart. The line chart shows the only closing price of a security during the particular time period.



Nifty50 Line Chart

2) Bar chart:


Bar chart looks as shown in below picture. In the bar chart, a bar type representation formed by using information of open, high, low and close price of a security.


Nifty50 Bar Chart


3) Candlestick chart:

Most famous and majority technical analysts use candlestick charts, by using high, low, open and close price for the particular time period, a candle type representation is formed in candlestick chart. Candle's color is decided by the price action of open and close:

If Close > Open then Green

If Close < Open then Red


(There is no hard and fast rule for the color of candles you can change as you want.)

Same as in all type chart you can analyze from 1-minute candlestick chart to 1-month candlestick chart.

Now we need to understand the very basic topic of technical analysis, without using it, one cannot able to predict the price of any tradable security.

Support and Resistance Levels:


We already know that market does not move like a straight line, it always moves in trends.

In this journey of the market we can find some levels from where the direction of the market starts to reverse its trend those levels are known as support and resistance levels.

Suppose the market is in an uptrend and from any level, it changes its direction to downtrend then that level is known as a resistance level.

And if the market is in a downtrend and from any levels, it stops its downtrend and goes to the direction of uptrend then those levels are known as support levels.

It is very important to identify support and resistance levels for any tradable security.

Because by using support and resistance, we can predict the price and direction of the price of any tradeable security.


How to identify Support and Resistance levels?


To identify support or resistance levels, one needs to find trend reversal points of price in a chart of any security.

From where Uptrend becomes downtrend, or downtrend becomes uptrend.

Method to Identify Support and Resistance is given below picture.

Trend reversals from support and resistances

Important things to remember about Support and Resistance levels:

  • Resistance will become support, if price crosses that level and sustains above it and support will become resistance, if price cross it and sustains below it.
Resistance became Support
  • Support and Resistances are levels, not just simple lines, they are regions of support and resistances.

  • Importance of support and resistance will increase in the proportion of the number of time they are tested. More time-tested resistance or support levels are more important than less time-tested levels.
  • It is very important to remember that there is always demand available near support levels and supply available near resistance levels.

How to use Support or Resistances for Trading?


Having lots of information is meaningless if you don't know how to use that information.

Same in the technical analysis also, if you know the concept of support and Resistance levels but don’t know how to use that concept to improve your analysis, then there no benefit for it. 

Uses of support and resistances are very much important.

Suppose the price of any security is started from Rs.101 and faced resistance at 105, after some time it successfully crossed 105 with high trading volume, then you can predict the next level of resistance this way:
  • Find the difference between breakout level and support level (In above case 105-101=4).
  • Add it to breakout level (105+4=109).
  • This will be your target or next possible resistance level(109).
In above example, we found the target of 109, but what if the price will not increase to 109 level and go below 105, 104, 103, 102..., this is known as a false breakout. 

Our position will become losing position.

For avoiding those condition you need to find risk and reward both while analyzing charts.

In trading we always need to look on both side until price doesn't fall below this level, there is a high probability that price will go around this level.

And if fall below this level one needs to exit in a loss to limit his or her loss. 

In above example we found breakout level at 105 and our calculated target is 109 but risk calculation depends on our risk taking capacity.

If one is conservative trader and is able to take Rs.1 risk to get Rs.4 then risk level is 104 (breakout level-Risk capacity)for his or her trade.

And if price will go below 105 , he or she will wait until price is above 104, if price will go below 104 he will exit immediately with loss of Rs.1 per share.

Limiting your loss is a most important thing in trading.

We will discuss Risk Reward, Target, Stop loss and where to put that to limit loss in our another article of Basics of Trading.

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Sunday, April 22, 2018

What are Shares? Why will a company issue shares?

Fundamental Analysis,
What are Shares? Why will a company issue shares?

Hey friends, welcome to Stock's Knows. Today's topic of the article is: what are shares? Why any company will issue shares?

In simple words, Shares are ownership part of something. But in the market, this part ownership is of any company or organization's profit. 

Do you think, if a share means ownership then companies issuing shares are selling their ownership, this is true that companies are selling their ownership but if you just have shares of any company you don't have any right to use their products or services without paying them.
i.e. If you have shares of Dmart you don't have right to go to any of DMart store and take anything from that without paying them.

There are two types of shares:

 1) Preference shares: 


  A Preference shareholder has right to get preference to receive money while liquidation of a company after paying to all the debt holders. 

1)Preference shareholders do not have any voting rights. 

2)They only paid by mostly fixed or at fixed rate dividend and capital after completing the term of preference issued.  

3)Preference shares are not traded on the stock market. 
2)Common or Equity shares:Remaining all the shares which do not have right of preference are known as common or equity shares. All the shares traded in the stock market, are common or equity shares.

As Equity or common Shareholder, you have some benefits: 

1) You can sell your shares of any company to anyone in open market at any time and any price. 
If you purchased a company's 100 shares at around Rs.100 and after some time you notice that price of that shares reached to Rs.200 per share and if you want to sell then you can sell shares you owned either full or part of it at Rs.200 per share.

2) You have a right to vote in decisions taken in Shareholder 's meeting as a proportion of shares owned by you.

3) You have a right to get dividend at any time when declared by a company as a proportion of shares owned by you.

 If a company declares the dividend of Rs.5 per share and if you have 100 shares of that company. You will receive Rs.500 to your account.   

Why will a company issue shares?
A company’s major purpose of issuing shares is to collect capital for improvements in the company like reducing loans, for working capital, for general corporate purposes, to purchase new instruments or machines or to build buildings or factories or any plants or maybe something different.
Benefits of issuing shares rather than taking loans from banks or any institutions.

1)The major benefit of issuing shares rather than taking debts (loans or bonds) is that if a company suffer from economic slowdown it doesn’t need to pay hefty interests to debt holders so that it can survive in bad time also. 

 While if a company have higher levels of debt as compare to equity or share capital then in bad time also it needs to pay hefty interests. Though a company is profitable in its top line but may not be profitable in the bottom line and if a company isn’t able to pay interest then it may be going to bankruptcy and maybe the company will not survive. i.e.

Image source: Screener.in
  Videocon industries have declared the standalone result of Mar 2017, operating profit was 1184.94 Cr and Net profit of -1915.68 Cr, due to the high-interest payment due of 3205.80 Cr, if it hasn’t taken such high loans it doesn’t have to pay such hefty interest and it would be profitable in net profit.

  2)Although a company needs to pay a dividend. But dividend policy is depending on the company if a company is suffering from an economic slowdown or weaken performance then it doesn’t need to pay a dividend to its shareholders.

 3)While liquidation of a company (if it happens) debt owners are preferred to pay by selling assets of a company after that preference shareowners are payable and then equity shareholders are payable.

Benefits to shareholders to buying shares:

1)Price of shares of any company depends in long-term on performance of company, a well-known quote by Ben Graham is “In short run, market is voting machine, but in long run it is a weighing machine.” means that in short-term price of a company may not be depends on its performance but in long term it depends on performance of that company. 

If a company do well in long run, in the long run, the price of its shares will go higher which will give benefit to its shareholders as capital appreciation. If a company does not do well in long run then in long run also the share price of it will go lower which will give drawbacks to its shareholders.

2)If a company give dividend then it will also benefit shareholders. Though it is not necessary to declare dividend it depends on a company’s dividend policy.

 Hence investment in equity is risky, any investment in any company should be done after doing proper research on that company.

This was the answer to what are shares and why a company will issue shares. Below is the video link to my YouTube channel’s video on what are shares and why a company will issue shares? In the video, I took an example to explain what are shares and why they are issued.


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Saturday, April 21, 2018

Do we all are already Technical Analysts?

Technical Analysis,
Do we all are already Technical Analysts?
Hey friends, welcome to Stock's Knows. Today's topic of the article is Technical Analysis of stocks. In share market, if you want to trade or even want to find perfect price for buying or selling any shares, you need to analyze stocks. There are mainly two types of analyzing a method to analyze any security: 

    1) Technical Analysis 

    2) Fundamental Analysis. 

 Technical Analysis is mostly used by Traders. But some long-term investors also use some sort of Technical Analysis for finding perfect Entry or Exit price of any security. In this article, we will understand about Technical Analysis. 

"Technical Analysis is a method to predict the direction of the price of a security by using a combination of price and volume actions and Patterns made by it."
Three basic principles of Technical Analysis:

 1)Price discounts Everything:
In technical analysis, we need to assume that all the information and news of the market is discounted in the price of a security so if we only analyze price and volume of security, all the information and news for security and impacts of it on any particular security automatically analyzed. Price and volume are indicators of any news related to Share or security.  

2)Price Moves in trends:
Technical Analysts believe that Price of any tradable instruments moves in trends. There are three types of trends: 

   1)Uptrend:
   If price moves in direction of Upside while making Higher highs and higher lows, this trend is known as Uptrend. 
   2)Downtrend:
   If the price of any security or tradable instrument moves in downside while making lower highs and lower lows, this trend is known as Downtrend.
   3)Consolidation:
   If price nighter makes higher high and higher low nor make lower high and lower low and moves between a range of two levels, this type of trend is known as consolidation or range bound trend.


3)History Repeat itself:
Technical Analysts believe that all the patterns made by price in present will repeat in future and patterns made by price in past will also repeat in future. Hence all the patterns or combination of patterns will repeat itself in the chart of any tradable security. All the History made by price will repeat itself. Ex. In past, if the price was fallen from any specific level, in future also it will also fall from that specific level.
Using these three assumptions all the technical analysts analyze the present condition of price and volume, after that on the basis of history predict the future direction of the price of any tradable security.

 The major benefit of Technical analysis is that it is applicable to any tradable security like Crude oil, Currency pairs, stocks, futures, indices in the same way. 

Want to understand Technical Analysis with simple example Checkout my video on Technical Analysis. 


In this video, I have explained what the Technical Analysis means. Maybe you don’t know but you are already a Technical Analyst.

In our life, we nearly every day analyze Price and Volume of products or things we have to buy. Isn't it strange we all are doing Technical Analysis without our knowledge? 

In the video, I have taken the example of buying the tomato. Suppose one day you went to Vegetable market and bought 1 kg tomato at the price of Rs.50/kg. 

 Now the second day again you visited the vegetable market, as soon as you entered you found that supply of tomato as compare to yesterday is very much higher and buyers are less as compare to yesterday. 

What do you think first about the price of tomato in the second day? More than Rs.50 or less than Rs.50? Less than Rs.50 right. 

 How do you know that? By comparing the volume of tomato of both days and price of the first day, we can predict the range of price for buying a tomato. Due to high supply and fewer buyers we found that more supply and Low demand will lead to drop in the price of anything. 

You can similarly apply these basic rules to any market, in the stock market also. But in the stock market at wall street, you also find buyers and sellers of shares and analyze price, demand, and supply of shares. 

But because of advances in technology, all things like buying and selling of shares become computerized now, hence we can directly not able to visualize supply and demand changes but for that, we need to study charts of price and volume of any security or share. Charts are drawn as price vs time, which shows what is the price at what time. 

 There are many websites available which provide readymade charts for any listed securities or shares you need to select a time period for which you need a chart to analyze. You can select ranges from 1 minute to 1 month. If you select 1 minute then you will get a chart of every 1 minute and analyze the movement of price in every minute, if you will select 1 month then you will get a chart of everyone month and able to analyze movements of price in every month. 

There was the basic info of Technical Analysis this is not enough to analyze any tradable security. There are many other things you need to learn for Technical Analysis, you will find all the articles about Technical Analysis, fundamental analysis and also get views of mine for some good companies to invest or trade for longer to the shorter term. 

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