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FAQs

  • Q. What is EPS?
    A.

    EPS or Earnings per share, is the net profit earned by the company divided by the number of outstanding equity shares. If any preference dividend is declared, it is subtracted from the net profit. Eg: A company earned net profit of Rs. 100 crore for FY10. It has 5 crore outstanding equity shares. No fresh issue of equity shares was made during the year, implying that the weighted average number of equity shares outstanding during the period is 5 crore. EPS = Net profit earned during the period Weighted average number of equity shares outstanding during the period EPS = 100 / 5 EPS = Rs. 20 Source: sptulsian.com

  • Q. What is the difference between cash EPS and EPS?
    A.

    Cash EPS takes into account the cash flow generated by a company on a per share basis, while EPS looks at the net income generated on a per share basis, for a given period. Like EPS, higher the cash EPS, better it is considered. Cash EPS = Operating cash flow for the period Weighted average number of equity shares outstanding Cash EPS can be computed from EPS by adjusting for depreciation, amortization of goodwill and other non-cash items such as deferred tax and intangibles. Source: sptulsian.com

  • Q. What is dividend payout ratio?
    A.

    Dividend Payout ratio, or simply payout ratio, is the percentage of a companys earnings paid as dividends to the shareholders. It indicates how well the companys earnings support the dividend payment. Dividend Payout ratio = Dividend per equity share X 100 Earnings per share (EPS) E.g.: For FY10, a company had EPS of Rs. 10. It paid dividend of 20% (Rs. 2 per equity share of Rs. 10 each) for the year. Dividend payout ratio = Rs. 2 X 100 Rs. 10 Dividend payout ratio = 20% Source: sptulsian.com

  • Q. What is dividend yield?
    A.

    Dividend yield is dividend to price ratio. It is the percentage calculated by dividing dividend per share by price per share. Dividend yield is used to calculate the earning on investment (shares) considering only the returns in the form of total dividends declared by the company during the year. Dividend Yield = Interim + Final Dividend X 100 Market Price of the share E.g.: For a company for FY10, Interim dividend = Rs. 2 per share Final dividend = Rs. 3 per share Share price = Rs. 50 Dividend yield = 2 + 3 50 Dividend yield =10% Source: sptulsian.com

  • Q. What does ISIN stand for wrt securities?
    A.

    ISIN stands for International Securities Identification Number (ISIN). It is an international numbering system set up by the International Organization for Standardization (ISO) to number specific securities, such as stocks (equity and preference shares), bonds, options and futures. ISIN contains 12 characters in total, which comprise of both alphabets and numbers. The first two digits stand for the country code, next nine digits are the unique identification number for the security while the last digit is a check digit to prevent errors. E.g.: ISIN for State Bank of India (SBI) is INE062A01012. Source: sptulsian.com

  • Q. What is the difference between rights and bonus shares?
    A.

    Bonus shares means new shares given free of cost to all the existing shareholders of the company, in proportion to their holdings. For example, a company announcing bonus issue of 1:5, is issuing one (new) bonus share for every five shares held by the shareholders of the company. Rights issues are a proportionate number of shares available to all the existing shareholders of the company, which can be bought at a given price (usually at a discount to current market price) for a fixed period of time. For example, a company announcing rights issue of 2:3 at Rs. 100 per share (current share price Rs. 130 per share), is issuing two (new) rights shares for every three shares held by the shareholders of the company at Rs. 100 per share. The rights shares can also be sold in the open market. If not subscribed to, the rights shares lapse on closure of the offer. Source: sptulsian.com

  • Q. What is swap ratio?
    A.

    Swap ratio is an exchange ratio used in case of mergers and acquisitions. It is the ratio in which the acquiring company offers its own shares in exchange for the target company's shares. To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share, profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the merger or acquisition and so on. For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share of its own company (company A) for every 5 shares of the company B being acquired. In other words, if company B has 10 crore outstanding equity shares and 100% of it is being acquired by company A, then company A will issue 2 crore new equity shares of company A to the shareholders of company B, proportionately. Source: sptulsian.com

  • Q. What does pari passu mean?
    A.

    Pari passu is a Latin term commonly used in legal documents meaning equal in all respects or in the same degree or proportion. For example, if issue of new shares is said to rank pari passu with the existing shares, then the rights associated with both the existing as well as the new shares are exactly the same. Source: sptulsian.com

  • Q. What is debt-equity ratio?
    A.

    Debt-equity ratio is a measure of leverage, indicating proportion of company's total capital contributed by secured and unsecured debt. A high debt-equity ratio, generally 2:1 and above, is not considered favourable for companies. Also, this ratio varies from industry to industry. Debt-equity ratio = Secured + Unsecured debt Shareholders Funds E.g.: As on 31st March 2010, company had secured loan of Rs. 70 crore, unsecured loan of Rs. 30 crore, shareholders funds (equity and reserves) of Rs. 200 crore. Debt-equity ratio = 70 + 30 200 Debt-equity ratio = 0.5:1 Source: sptulsian.com

  • Q. What are DVR shares?
    A.

    What are DVR shares? 29 May 2012 at 11:00 am DVR or differential voting rights shares are like ordinary equity shares but with differential voting rights. Shares can have higher or lower voting rights as compared to the ordinary equity shares. However, Indian regulations do not permit companies to issue equity shares with higher voting rights. Hence, Indian DVR shares provide for lower voting rights as compared to ordinary equity shares. Companies issue DVRs for several reasons such as prevention of a hostile takeover, bringing in a passive strategic investor or dilution of voting rights. DVR investors are generally compensated with a higher dividend rate. This makes the DVRs attractive for retail investors who do not want control in the company, but are looking at the long-term growth prospects. DVR shares are listed on the stock exchanges and are traded in the same manner as ordinary equity shares, but they mostly trade at a discount, sometimes as high as 30%, due to fewer voting rights. Tata Motors, Gujarat NRE Coke, Pantaloon Retail, Jain Irrigation are some of the Indian companies that have issued DVR shares. E.g.: Tata Motors DVR shares carry voting rights which are one-tenth of the ordinary equity shares. The DVR shareholders are entitled to an additional 5% dividend, over and above the ordinary equity shareholders. Tata Motors DVR are trading at 800 or 36% discount to the ordinary shares, which are at trading at Rs 1,245 (as of 23rd November 2010). Source: sptulsian.com

  • Q. What is a Call option?
    A.

    Call option gives the buyer the right but not the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date. For e.g.: Buying 1 call option of ONGC 1250 30Dec2010 comprising 250 equity shares for Rs. 80 per call will give the buyer the right to buy 250 ONGC shares on or before 30th December 2010 at Rs. 1,250 per share, irrespective of the share price (in cash market). Since it is only a right and no obligation to buy, the buyer can let this right lapse, which will be the case when ONGC share price is less than Rs. 1,250 in cash market. In the above case, loss is limited to Rs. 80 while the gains are unlimited to the buyer. Rs. 80 paid is termed as option premium or the cost of purchasing 1 call option containing the pre-determined quantity of the underlying. Selling a call option gives the seller the obligation to sell a given quantity of the underlying asset at a given price on or before a given future date, when the right is exercised by the buyer. For a seller of call option, profit is limited to the premium earned while loss it unlimited, as the buyer can exercise his call option anytime till the expiry of contract. Source: sptulsian.com

  • Q. What does In the Money, Out of Money, At the Money mean, with respect to Call Option?
    A.

    What does In the Money, Out of Money, At the Money mean, with respect to Call Option? 19 Jun 2012 at 11:00 am A Call Option is said to be In the Money if its strike price is less than the current stock price in the cash segment of the market. Exercising an In the Money Call Option will lead to profit for the option holder. Call Option is At the Money if its strike price is equal to price of the underlying i.e. current stock price in the cash segment of the market. Exercising an At the Money Call Option will lead to no profit / no loss situation for the option holder. Call Option is said to be Out of the Money if its strike price is more than the current stock price in the cash segment of the market. Option holder must not exercise an Out of the Money Call Option as it will lead to loss. E.g. If share price of ABC Ltd is Rs. 100 in the cash market, a call option will strike price of 90 is In the Money call option, whereas a call option with strike price of 110 is Out of Money call option and call option with strike price 100 is At the Money Call option. Source: sptulsian.com

  • Q. What is a Put option?
    A.

    Put option gives the buyer the right but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given future date. For e.g.: Buying 1 put option of ONGC 1250 30Dec2010 comprising 250 equity shares for Rs. 15 per put, will give the buyer the right to sell 250 ONGC shares on or before 30th December 2010 at Rs. 1,250 per share, irrespective of the share price (in cash market). Since it is only a right and no obligation to sell, the buyer can let this right lapse, which will be the case when ONGC share price is more than Rs. 1,250 in cash market. In the above case, loss is limited to Rs. 15 while the gains are unlimited to the buyer. Rs. 15 paid is termed as option premium or the cost of purchasing 1 put option containing the pre-determined quantity of the underlying i.e. 250 ONGC equity shares. Selling a put option gives the seller the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date, when the right is exercised by the buyer. For a seller of put option, profit is limited to the premium earned while loss it unlimited, as the buyer can exercise his put option anytime till the expiry of contract. Source: sptulsian.com

  • Q. What does Open Interest mean?
    A.

    Open Interest is the total number of outstanding contracts held by market participants at the end of the day. Alternatively, it is the total number of futures contracts that have not yet been exercised (squared off) or expired. Open interest indicates the trend in the F&O market and measures the flow of money into the futures market. The open interest position represents the increase or decrease in the number of contracts for a day, and it is shown as a positive or negative number. Calculation of Open Interest: Each trade completed on the exchange has an impact upon the level of open interest for that day. There a three possibilities - 1.One new buyer, one new seller (both parties initiating a new position) - open interest will increase by one contract 2.One old buyer, one old seller (both parties are closing an existing/old position) - open interest will decline by one contract 3.One old buyer, one new buyer (old trader passing off his position to a new trader) - open interest remains unchanged Increasing open interest means that new money is flowing into the marketplace. The result will be continuation of present trend (up, down or sideways). Declining open interest means that market is liquidating and implies prevailing price trend is coming to an end. Source: sptulsian.com

  • Q. What is meant by Stoploss?
    A.

    Stoploss is a buy or sell order which gets triggered automatically, once the stock reaches a certain price. The aim here is to limit the loss on a security (buy or sell) position. A stop order to sell becomes a market order when the item is offered at or below the specified price. E.g.: If you have bought 1 share of RIL at Rs. 1,050, you will enter stoploss order at a price below Rs. 1,050, say Rs. 1,020. If RIL share price falls to Rs. 1,020, a sell stoploss order will get triggered, which limits your loss on account of purchase to Rs. 30. Similarly, a stop order to buy becomes a market order when the item is bid at or above the specified price. E.g.: If you have short-sold 1 share of RIL at Rs. 1,050, you will enter stoploss order at a price above Rs. 1,050, say Rs. 1,070. If RIL share price rises to Rs. 1,070, a buy stoploss order will get triggered, which will limit your loss on account of sale to Rs. 20. There are no set rules for stoploss orders. Traders deploy very tight stoploss orders, while investors may not need it also. Advantage of stoploss is it avoids the need for constant monitoring of share price. Its disadvantage is that short-term price fluctuations could trigger stoploss orders very frequently. Also, setting very narrow stoploss for shares historically having wide price fluctuations could lead to unnecessary triggers of stoploss. E.g.: If you bought 1 share of RIL at Rs. 1050 with stoploss of Rs. 1020. This means that if the stock falls below 1020, your stoploss order will automatically become a market order and share will be sold at the then prevailing market price, not necessarily the stoploss price. Thus setting a stoploss order below the purchase price will limit the loss, but in a very fast-moving market, losses may be higher than expected. Source: sptulsian.com

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