To all those who are starting their investment journey here all the terms you must know .

You don’t have to go anywhere and search every term , just read all these and you are good to start ,

Please follow me for more updates Surajit Bhowmik

Financial Statements

1. Balance Sheet

• Assets: Resources owned by a company (e.g., cash, inventory, property).
• Liabilities: Obligations the company owes (e.g., loans, accounts payable).
• Equity: The residual interest in the assets of the entity after deducting liabilities.

If you want to read in details about how to analyse Balance Sheet then Click here What is Balance Sheet ? & How to Read it ?

1. Income Statement

• Revenue: The total income generated by the sale of goods or services.
• Expenses: The costs incurred in the process of earning revenue.
• Net Income (PAT): Revenue minus expenses, indicating the company’s profit or loss. (Profit After Tax)
• PBT (Profit Before Tax): The income before taxes are deducted.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization.

If you want to read in details about how to analyse Profit and Loss Statement then Click here How to Read and Analyse A Profit & Loss Statement !

1. Cash Flow Statement

• Operating Activities: Cash flows from primary business operations.
• Investing Activities: Cash flows from buying and selling assets.
• Financing Activities: Cash flows from borrowing and repaying debt, issuing stock, etc.

If you want to read in details about how to analyse Cashflow Statement then Click here How to Read and Analyse A Cashflow Statement ?

Key Financial Ratios

1. Profitability Ratios

• Gross Margin: (Revenue – Cost of Goods Sold)/ Revenue
• Operating Margin: Operating Income / Revenue
• Net Profit Margin: Net Income/ Revenue
• Return on Assets (ROA): Net Income / Total Assets
• Return on Equity (ROE): Net Income / Shareholder’s Equity
• Return on Capital Employed (ROCE): EBIT / (Total Assets – Current Liabilities)
• Return on Invested Capital (ROIC): (Net Income- Dividends) / (Debt + Equity)

1. Liquidity Ratios

• Current Ratio: Current Assets \Current Liabilities
• Quick Ratio (Acid-Test): (Current Assets – Inventory) / Current Liabilities
• Cash Ratio: Cash and Cash Equivalents / Current Liabilities

1. Leverage Ratios

• Debt-to-Equity Ratio: Total Liabilities / Shareholder’s Equity
• Debt-to-Assets Ratio: Total Liabilities / Total Assets
• Interest Coverage Ratio: EBIT/ Interest Expense
• Pledged %: The percentage of promoter shares that are pledged as collateral for loans.

1. Efficiency Ratios

• Asset Turnover Ratio: Revenue / Total Assets
• Inventory Turnover Ratio: Cost of Goods Sold / Average Inventory
• Receivables Turnover Ratio: Net Credit Sales / Average Accounts Receivable

Market Valuation Metrics

1. Earnings per Share (EPS): Net Income / Number of Outstanding Shares
2. Price-to-Earnings (P/E) Ratio: Market Price per Share/ Earnings per Share
3. Price-to-Book (P/B) Ratio: Market Price per Share/ Book Value per Share
4. Dividend Yield: Annual Dividends per Share / Price per Share
5. Dividend Payout Ratio: Dividends Paid/ Net Income

Growth Metrics

1. Revenue Growth Rate: The percentage increase in revenue over a specific period.
2. Earnings Growth Rate: The percentage increase in net income over a specific period.
3. Dividend Growth Rate: The annualized percentage rate of growth in the dividends paid by a company.
4. Compound Annual Growth Rate (CAGR): The mean annual growth rate of an investment over a specified period of time longer than one year.

Risk Metrics

1. Beta: Measures the volatility of a stock relative to the overall market.
2. Standard Deviation: Measures the amount of variation or dispersion of a set of values.
3. Alpha: Indicates excess return or active return on an investment relative to a benchmark index.

Miscellaneous

1. Market Capitalization: The total market value of a company’s outstanding shares.
2. Enterprise Value (EV): (Market Capitalization+ Total Debt – Cash and Cash Equivalents)
3. Free Cash Flow (FCF): Operating Cash Flow – Capital Expenditures
4. Capital Expenditures (CapEx): Funds used by a company to acquire or upgrade physical assets.
5. Return on Investment (ROI): (Gain from Investment – Cost of Investment) / Cost of Investment
6. Book Value: The net asset value of a company calculated as total assets minus intangible assets (patents, goodwill) and liabilities.
7. Face Value: The nominal value of a security stated by the issuer.

Corporate Actions

1. Bonus Issue: Additional shares given to current shareholders without any additional cost, based upon the number of shares that a shareholder owns.
2. Stock Split: An increase in the number of shares, which reduces the share price without changing the market capitalization.
3. Buyback: A company buying back its own shares from the marketplace, reducing the number of outstanding shares.
4. Preferential Allotment: Issuing shares or convertible securities to a select group of investors at a price which may or may not be related to the current market price.

Stakeholders and Trading

1. FII (Foreign Institutional Investors): Investors or investment funds that are from or registered in a country outside of the one in which they are currently investing.
2. DII (Domestic Institutional Investors): Investors or investment funds that are from or registered in the same country in which they are investing.
3. Promoter: A person or group of people who establish or promote the company.
4. Insider Trading: Buying or selling a publicly-traded company’s stock by someone who has non-public, material information about that stock.
5. Bulk Deal: A trade where the total quantity of shares bought or sold is more than 0.5% of the number of equity shares of a company listed on the exchange.
6. Block Deal: A trade with a minimum quantity of 5 lakh shares or a minimum value of Rs 5 crore, executed through a single transaction.
7. ESOP (Employee Stock Ownership Plan): A program that provides a company’s workforce with an ownership interest in the company.
8. IPO (Initial Public Offering): The process by which a private company offers shares to the public in a new stock issuance, allowing it to raise capital from public investors.
9. QIP (Qualified Institutional Placement): A capital-raising tool, primarily used in India, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants, which are convertible to equity shares to a qualified institutional buyer.

Securities

1. Warrants: A derivative that confers the right, but not the obligation, to buy or sell a security, most commonly equity, at a certain price before expiration.

Brokerage and Accounts

1. Broker: A person or firm that arranges transactions between a buyer and a seller for a commission when the deal is executed.
2. Demat Account: An account that allows investors to hold shares and securities in electronic format.

Understanding these terms, ratios, and metrics will equip investors with a robust framework to evaluate and make informed investment decisions.

Share it with others

Follow My Portfolio

Subscribe to our latest posts