Stock Market Terms | A - DThis Glossary page of stock market terms is aimed to evolve into a useful resource page for beginner investors. Will keep updating this page with relevant links for further reading up! Meanwhile Happy Learning! Hope you find this resource page as useful as I have enjoyed putting this up!
Asset Turnover Sales/Total Assets Asset Turnover tells us roughly how efficient a company is at generating revenue from each dollar/rupee of Assets Book Value per share (BV) (Equity Capital + Reserves & Surplus)/Shares Outstanding Book Value per share is derived from the Shareholders' Equity or Net Worth of the Company divided by the number of equity shares outstanding Practical use Capital Work in Progress Balance Sheet Item Construction or installation of plant and machinery, etc. which is not completed at the year end and is ongoing, is recorded in the books as Capital Work in Progress because it is an asset for the business. Capital Expenditure (Purchase of fixed assets -Sale of fixed assets +Capital Work in progress reporting FY - Capital Work in progress previous FY) Money spent on long term assets -such as buildings, plant and machinery -basically, anything needed to keep the business running and growing at its current rate. Cash and Bank Balance Balance Sheet item Just as it sounds, Cash and Bank Balance are cash on hand, cheques on hand, remittances in transit, and balances with banks - that can be liquidated immediately with zero price risk Cash Return ratio Free Cash Flow/Enterprise Value The best yield-based valuation measure is a relatively little-know metric called Cash Return ratio. In many ways it’s actually a more useful tool than the P/E. To calculate cash return, divide Free Cash Flow by Enterprise Value. Practical use Cost of Sales Also known as cost of goods sold, this number represents the expenses most directly involved in creating revenue, such as labour costs, raw materials (for manufacturers), or the wholesale price of goods (for retailers). Current Assets Balance Sheet item Current Assets are those likely to be used up or converted into cash within one business cycle, usually defined as one year. It consists of Cash and cash equivalents, Sundry Debtors, Inventories, short term investments and marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. Current Liabilities Balance Sheet item Liabilities, that have to be paid within a period of one year. It consists of creditors, bills payable, deposits from dealers and/or advances from customers, and other liabilities Current Ratio Current Assets/Current Liabilities The current ratio simply tells you how much liquidity a company has - in other words, how much cash it could raise if it absolutely had to pay off its liabilities all at once. See also Quick Ratio as a more conservative test of a company’s liquidity. Practical Use Debtor Days Sundry Debtors/Sales Turnover)*365 The Debtor days metric measures how quickly cash is being collected from debtors. A low debtor days number may indicate that the company is efficient in its collections or that credit standards are too restrictive and depressing sales. A large number may indicate that the company is having difficulty collecting the money it is owed and its credit standards are too lax. Another related cash conversion efficiency metric is Inventory Days. Practical Use Debt to Equity Total Debt/Shareholders Equity Total debt of the company divided by the Shareholders' Equity. Debt to equity ratio varies considerably depending on the business of the company Practical Use A company could potentially generate more earnings If a lot of debt is used to finance increased operations (high debt to equity) than it would have if it did not have access to this external financing. Shareholders would benefit if this resulted in increased earnings by an amount greater than the debt cost (interest). However, the cost of this debt financing may become too much for the company to handle, especially if earnings are cyclical and volatile, and outweigh the return that the company generates on the debt. Companies in heavy industries such as auto, fertilisers and steel which require large investments in property, plant and machinery, or technology usually have higher debt to equity ratio. Depreciation Profit & Loss Account item When a company buys an asset intended to last a long time, such as a new building or a piece of machinery, it charges off a portion of that cost of that asset on its profit and loss account over a series of years. That apportioned (or amortised) cost in the year is Depreciation. Dividend Profit & Loss Account item Dividends are payments made by a company to its shareholders. When a company earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (retained earnings), or it can be paid to the shareholders as a dividend. Many companies retain a portion of their earnings and pay the remainder as a dividend. Dividend Payout Dividend per share/Earnings per share Dividend Payout provides us a measure of how much of the earnings is paid out to shareholders as dividends. Higher dividend payouts are the norm in more mature companies. Practical Use Dividend per share Dividend/Shares Outstanding Dividend paid out by the company on a per share basis Dividend percentage Dividend per share/Face Value per share Dividend per share as a percentage of the Face Value per share Practical Use Dividend Yield Dividend per share/current market price A popular yield based measure used to value stocks is the dividend yield. It allows investors to compare the latest dividend they received with the current market price of the share as an indicator of the return they are earning on their shares. Practical Use You may also like to refer other stock market terms Stock Terms | E-I Stock Terms | M-P Stock Terms | Q-Z Return from Stock Market Terms to Stock Market Basics Return from Stock Market Terms to Stock Market for Beginners
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