STOCK'S KNOWS: Fundamental Analysis

Showing posts with label Fundamental Analysis. Show all posts

Monday, April 30, 2018

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.

What are Shares? Why will a company issue shares?

Gaurav Fundamental Analysis,

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.