Stock Market Glossary

If you are a beginner in share Market, these are some Important Terms you should be familiar with.

Equity: In simple terms, The Amount Invested by Owner & Investors to start & to run the company is called Equity.

Suppose a company XYZ Corp has 10,00,000 (Ten lakh) outstanding shares each of Rs.10 (face Value). Then the Equity capital of that company becomes    1 Cr.

So, Equity capital of XYZ Corp is 1 Cr. With no of shares 10 Lakh.

Equity word becomes important when you are calculating EPS of any company or ROE (return on Equity)

Face value: Face value of any share is the original cost or nominal value of that share, In the above example face value of XYZ corp. share is 10 Rs. the market value may be different like 100,250,300 depending upon the demand of the share.

Book Value: Book value is calculated by adding reserves to the equity & dividing the value by no of outstanding equity shares. (the reserves value is calculated by adding profit or subtracting the losses in last year’s reserves)

Example: Suppose that XYZ corp has got 10 lakh outstanding shares of 10 Rs face value each (equity is 1 Cr-10 lakh Equity share * 10 Rs. Face value each) now at the end of the financial year suppose the profit is 50 Lakh. This will be added to 1 cr. equity then the book value will be as per following

Equity 1 Cr+ Profit-50 lakh =1.5 Cr.

Hence Book value will be

1.5 Cr/ 10 lakh=15 Rs.    So, at the end of the financial year book value is Rs. 15….There are lot of other factors involved but I am just trying to give you some basic Idea about the term Book value.

The book value will keep on changing every year based on the profit or loss the company makes.

Market value: Market value is the Actual value at which the share trades in the stock market.

EPS:   EPS or Earning per share is one of the important tools in assessing a shares value.

EPS indicates about the quality of share you are holding. A good EPS company always attracts all investors & financial Institutes to invest in the company. (Please note in this case PE ratio also plays an Important role). If a company is having excellent EPS but at the same time if the PE ratio is very high as compared to Industry PE then the share might be expensive to Invest.

EPS is calculated by dividing the Net profit by no of outstanding shares.

Example -XYZ Corp is having 10 lakh outstanding equity shares of 10 Each & suppose this year the profit at the end of financial year is 50Lakh then the EPS will be

EPS=Profit / No of outstanding equity shares

EPS=50 Lakh/10 lakh

EPS=5

PE RATIO: PE Ratio or Price to earnings ratio is calculated by dividing the market price with trailing twelve-month Earnings per share .PE ratio changes daily as per daily market price.

Example: For XYZ corp. If the Market price is 100 (the share closing price is 100 on a day & the trailing twelve months EPS is 5 then the PE ratio will be 20.

RONW%: Return on net worth is calculated by dividing net profit with / Equity *100

There are lot of other aspects involved in calculating RONW% like the preferential dividend is deducted from net profit & deduction of reserves but to simply understand the term you can just remember this equation

RONW%= (Net Profit / Equity) * 100

 DIVIDEND YIELD %- It is the ratio of (Dividend in RS / Dollars per share to Market Value )*100 

Consider that XYZ Corp Market value is 300 Rs. And It gave 100 % dividend.

So if the face value is Rs.10 then the Dividend will be Rs.10 & Dividend yield will be

Dividend Yield = ( 10/300)*100=3%

For some more information on Indian stock market you can always try websites like

Money control – https://www.moneycontrol.com/or

share khan –https://www.sharekhan.com/