Cash Flow

Cash flow is the amount of money coming in or going out of the business in a given period of time, say, one financial year. It helps to determine how much liquidity the company has. If a company is "cash flow positive", it means that it is generating more cash from the business than it is paying out. This is a positive sign because it means the company has bargaining power. It is selling to its customers and receiving payment early while it is buying from the suppliers and paying them late. If a company is "cash flow negative", it is a dangerous sign because it means that the company has no liquidity and is desperately dependent on its suppliers and creditors. They can hold the company to ransom by choking its credit limits.

EPS (Earning Per Share)

EPS (Earning Per Share) = Net Profit / Number of Outstanding Shares There are variants such as the "Diluted EPS" which means that even the shares that will be issued in the future pursuant to outstanding warrants or bonds are also considered.

Example: Hawkins Cookers' net profit for the year ended 31.3.2012 was Rs. 30.08 crores. The numbers of equity shares were 56.9 lac and so the EPS is Rs. 56.83.

"Cash EPS" is worked out by taking the operating cash profits (without reducing non-cash expenditure such as depreciation).

P/E Ratio

The Price-Earnings (PE) Ratio is a valuation ratio of the company's current share price compared to its earnings per share (EPS). In other words, how of a multiple of the EPS is one paying to buy the stock. This criterion helps to identify, how cheap or expensive a stock is compared to its peers. It is calculated with the formula: Market Value per Share / Earnings per Share (EPS)

For example, if the stock is available at Rs. 20 each and the EPS is Rs.5, the PE ratio is 20/5 = 4.

The PE is usually calculated on the EPS of the previous 12 months (the "trailing twelve months" ("TTM").The PE ratio can be used to benchmark companies within the same Industry or sector. For example, if one is comparing two PSU banks, if one has a PE of 5 and the other has a PE of 8, the question is why one is paying a premium for the second one and whether there is a valuation aberration somewhere that an investor can take advantage of.

Example: Hawkins Cooker's EPS in the year ended 31.3.2012 was Rs. 56.85 (as calculated above). The market price per share is Rs. 1,687 and so the PE ratio is 29.66.

Return on Equity (ROE)

ROE or Return on Equity indicates how efficiently the management is able to get a return from the shareholders' equity. ROE is calculated with the following method:

Net Income / Shareholders' Equity, .

For Example: Suppose a company earned Rs. 1,000 in profit and the total equity capital is Rs. Rs. 2000. The ROE is 1000/2000 = 50%.

Suppose another company in the same sector/ industry earned a ROE of 30%. You know which company is a more efficient utilize of capital. A variation of the same concept is the Return on Net worth of RONW in which we take in not only the equity capital but also the retained earnings (reserves).

Example: Hawkins Cooker's Net Worth (equity + reserves) as of 31.3.2012 was Rs. 51.59 crores while its net profit was Rs. 30.08 crores. The Return on Net Worth is 58%

Debt Equity Ratio

Debt Equity Ratio is the proportion of debt to equity used to run the company's operations. It is calculated with the following method:

Total liabilities / equity share capital + reserves

When examining the health of your business, it's critical to take a long, hard look at company's debt-to-equity ratio. If Debt Equity ratios are increasing, meaning there's more debt in relation to equity, Company is being financed by creditors rather than by internal positive cash flow, which may be a dangerous trend. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as capital goods, auto manufacturing tend to have a debt/equity ratio above 2, while IT companies / Consumer Goods companies with high brand equity have a debt/equity of under 0.5.

Example: Hawkins Cooker's equity + reserves as of 31.3.2012 were Rs. 51.6 crores while its debt was Rs. 12.22 crores. The debt equity ratio is 0.24

For Example: Suppose a company earned Rs. 1,000 in profit and the total equity capital is Rs. Rs. 2000. The ROE is 1000/2000 = 50%.

Suppose another company in the same sector/ industry earned a ROE of 30%. You know which company is a more efficient utilize of capital. A variation of the same concept is the Return on Net worth of RONW in which we take in not only the equity capital but also the retained earnings (reserves).

Dividend Yield

Dividend Yield' is a financial ratio that shows how much the company pays out in dividends each year relative to its share price. It is calculated by the following formula:

Interim + Annual Dividends in the year/Price per share x 100

If you find that company is paying consistent dividend year after year with dividend yield of above 7%, you can think to invest in such stocks instead of blocking your money in fixed deposits. Here, you can think of some appreciation in stock price along with 7% returns on yearly basis through dividend payment. Example: Oil India declared a dividend of 450% (Rs. 45.0 per share). Because its market price is Rs. 489, the dividend yield is 45.0/489×100 = 9.2%.

Market Capitalization/Capture

It is the value for the entire company can be bought on the stock market. It is derived by multiplying the total number of equity shares by the market price of each share. This helps to determine whether the stock is undervalued or not.

For instance, if a stock with a consistent profit of Rs. 100 is available at a market cap of Rs. 200 Cr. is undervalued in comparison to another stock with a similar profit but with a market cap of Rs. 500 Cr.

Example: Hawkins Cooker's has issued 52.90 lac shares. The price per share is Rs. 1,819 and so the market cap of the company is Rs. 962 crores. This means, theoretically, that if you had Rs. 962 crores, you could buy all the shares of Hawkins Cooker – It's not actually practically possible (To know this kindly refer our Financial Learning Book Let)

Support and Resistance

Support and resistance symbolize key junctures where the forces of supply and demand rally. In the financial markets, prices are motivated by excessive supply (down) and demand (up). As demand increases, prices move on and as supply overpowers, prices decline. When supply and demand are equal, prices move sideways as bullish and bearish camps fight it out for control over prices. Supports once breached repeal its role and acts as resistance for future price action. On the flip side, once resistance is breached decisively (with higher volumes) it changes its role as support for further price action. This is true irrespective of time frame.

\

There are following more financial terms which investors/traders must understand, you may get all these terms understood after getting subscribed on InvestorsPride.com.

Arbitrage, At-the-Money, Averaging Down, Basis Point, Bear Market, Business Day ,Bid, Beta ,Block Trades ,Blue Chip Stocks ,Bond ,Top Line, BottomLine, Margins, Debt/Loans (Secured/UnSecured), Cash in Hand, Depreciation , Appreciations , Assets , Profit , Loss , Liabilities, Expenses, Book Value, Price Book Value Ratio ,SEBI ,NSE, BSE, Small Cap, Mid Cap, Large Cap, ADR, GDR, FCCB, Stake Sale, Promoter Holding Percentage, Public Holding, FII Holding, DII Holding ,FII ,DII ,HNI ,Tax ,STT ,VAT ,GST ,EMI , Service Tax, Income Tax, Direct Tax, In Direct Tax, Advance Tax ,Pledge ,Share Holding Pattern ,Dividend ,Stock Split, today stock for intraday, Ex Dividend ,Ex Bonus ,Rights Issue Preferential Allotments ,AGM ,Bulk Deal ,Block Deal ,Insider Trading ,IPO ,List Price ,share market tips, Bonus Issue ,Ex Bonus Date, Face Value , PNote , GAAR, Subsidiaries ,Parent Company, Sister Companies , best intraday stocks for today, Bankruptcy , Auction, Short, Selling, Future, Option, Long, Short, Call, Put, Premium, Discount, Secondary Market ,Primary Market, Demat Account, Online Trading, Sector ,Liquidity ,Inflow ,Outflow ,Inflation ,Cash Reserve Ration – CRR ,SLR ,Reverse Repo – RR ,Base Rate ,Spread ,RBI,PSU, Private Sector, Trade to Trade ,Circuit Filter,BSE100,BSE200 ,BSE500,Dividend History ,Small Caps ,Midcaps ,Large Caps ,best intraday stocks to buy today, Open Interest ,Positive Break Out, Negative Break Outs, Mutual Fund, Entry Load ,Tax Returns ,Tax Refund ,Capital Gains ,Debt Instruments ,intraday tips for today, Fixed Deposit ,Guaranteed Returns ,Insider Trading ,Flash Crash ,Circuit Filter/Limit ,Annual Report ,BTST, Accounts Receivable: Money owed by customers ,Accounts Payables: Money owed to suppliers ,Mortgage Loan ,TDS – Tax Deducted at Source ,Yield ,Investment ,best intraday share. Tax-Deferred ,Variable Rate ,Prime Rate ,Principal, stock market tips ,Top Mutual Fund ,Net Worth ,Breadth (Market) ,Brokerage ,Online Banking ,Payday loan ,Roth IRA (Individual Retirement Account),Share Certificate (Certificate of Deposit),Simple interest, Stock, Equity, Security, Adjustable-Rate Mortgage (ARM),Multibagger, Hidden Gem, Amortization period, Annual Percentage Rate (APR),Annual Percentage Yield (APY),Annuity ,Appraisal Fee, Balloon , DebtFree , DebtFreeStocks ,Payment ,Bankruptcy ,Budget ,Capital ,Capital Gain Tax, Cash Flow ,Check ,Cash ,Collateral ,Compound interest ,Conventional mortgage ,Co-signer, ESA (Education Savings Account),Credit report ,CIBIL ,Credit score ,Credit union ,Debit card ,Credit Card ,Debt – Money owed; also known as a liability, Default, best stocks for intraday trading in nse, Delinquency ,Direct Deposit , ECS ,Payment Gate Way , Diversification , Escrow , DebtFree ,Foreclosure ,Garnishment ,Shares as Margin ,Minimum Margi ,Nifty ,Mini Nifty ,LOT Size ,Home equity loan ,IRA (Individual Retirement Account),Inflation,Installment-credit,Liability,Lien,Loan,Loan-to-value,(LTV),Tax-Deferred , Unsecured credit ,Variable-rate mortgage ,Bull Market ,Offer Price ,Technical Analysis Patters ,Put Call Ratio ,DebtFree ,Speculator ,Book Value ,Annexure Sheets ,Schedule VI reports ,FMCG ,Hottest Sector ,Sector PE ,Consumer Durables ,Consumption Story ,GDP ,Fiscal Deficit, NASDAQ, Dow Jones ,DAX ,CAC ,Hang Sang ,DebtFree , DebtFreeStocks , HiddenGems , Multibaggers , Growing Companies , High Growth , DebtFree , DebtFree Companies , DebtFree Stocks , HiddenGems ,Multibaggers ,Nikkei ,DebtFree ,Shanghai ,Insurance ,Investment ,Term Insurance ,Money Back Policy ,Credit,DebtFree, History ,PAN ,TIN ,Adhar Card ,Ration Card ,Home Loan ,Top Up Loan, Sensex ,Fastest Growing Companies , DebtFree ,Top Growth Indian Stocks ,Debt Free Company ,Cash Rich Company ,High Dividend Yield Stocks ,share market investment tips, Stocks ,Penny Stocks ,Black Listed Companies, Poor Management Companies ,Good Management Companies ,Healthy Balance Sheet ,Poor Balance Sheet ,Quarterly Results ,investmentguruindia stock tips, Results Comparison , Annual Results ,Interim Dividend , Final Dividend , Tax on Dividend, Stake Sell, Share Holders Permission, ETF, FOREX, Rupee Weak Ness , Rupee Strength, Euro, Dollar, SIP,MIP, Infrastructure Bonds, Rajeev Gandhi Equity Scheme for Tax Saving, Defensive Sector, Corporate Action , OFS , Listing, Operator , BSE Member ,NSE Member, intraday tips for today nse free, Delivery %,DebtFree, DebtFree , Delivery Volume, Complaint to SEBI , Court for Disputes, Derivatives, Pre Open Market, Market Closing Averages, NCFM Modules, Most Active , Global Indices, Research ,Technical Call Strategies , Active Calls , Active Puts, Top Looser , Top Gainer, Emerging Markets, Technical Chart , Price Patterns , Head & Shoulders , Double Top , Double Bottom , Round Bottom , Triangles , Trend Lines , stocks to buy tomorrow for intraday Support & Resistance , DebtFree, Accumulation , Distribution , Bollinger Bands , MACD , RSI , ROC , Price Style , Line , Candlestick , Fundamental Analysis , Technical Analysis , Bull Spread Strategy , Financial Products In India, EMI , Financial Goals Setting , Advance Charts, Top Rated Funds , Reliance Funds , HDFC Funds , ICICI Funds ,nse stocks for intraday, Birla Sun Life Funds , SBI Funds , Investing Tools , 52 Week High , 52 Week Low ,Sensex Weightage , DebtFree ,DebtFreeStocks ,HiddenGems , Multibagger Stocks , Growing Companies , High Growth Stocks,DebtFree MMB , Moneycontrol boarder DebtFree

**All above financial terms are our clients ask which they were having in their mind to know/elaborate, In our book let all these terms have been defined in a very user friendly manner to let our clients understand effectively before investing their hard earned money to Markets.