Key Concepts of Stock Market

 Market Capitalization (Market Cap)

Definition: Market capitalization is the total market value of a company's outstanding shares of stock. It’s calculated by multiplying the current share price by the total number of outstanding shares.

Example: If a company has 1 million shares outstanding, and its share price is ₹500, the market cap would be:

Market Cap=Share Price×Outstanding Shares=500×1,000,000=₹500,000,000

 

Earnings Per Share (EPS)

Definition: EPS indicates the portion of a company’s profit allocated to each outstanding share of common stock. It’s calculated as net income minus dividends on preferred stock, divided by the number of outstanding shares.

Example: If a company has a net income of ₹1 million and pays ₹200,000 in dividends on preferred stock, with 100,000 shares outstanding:

EPS=Net Income−Dividends/Outstanding Shares=1,000,000−200,000/100,000=₹8

Book Value

Definition: Book value is the value of a company according to its balance sheet. It is calculated as total assets minus total liabilities.

Example: If a company has total assets of ₹10 million and total liabilities of ₹6 million, the book value would be:

Book Value=Total Assets−Total Liabilities=10,000,000−6,000,000=₹4,000,000

Stock Price-to-Earnings Ratio (P/E Ratio)

Definition: The price-to-earnings (P/E) ratio measures a company's current share price relative to its earnings per share (EPS). It’s used to evaluate if a stock is overvalued or undervalued.

Example: If a company's share price is ₹100, and its EPS is ₹10, the P/E ratio would be:

P/E Ratio=Share Price/EPS=100/10=10

 

Price to Book Value (P/B Ratio)

Definition: The price-to-book (P/B) ratio compares a company's market value to its book value. It’s calculated as the market price per share divided by the book value per share.

Example: If a company's share price is ₹200, and its book value per share is ₹100, the P/B ratio would be:

P/B Ratio=Share Price/Book Value per Share=200/100=2

 

Pledged Percentage

Definition: The pledged percentage refers to the proportion of a company’s shares that have been pledged as collateral against loans taken by promoters or directors.

Pledged Percentage=Pledged Shares/Total Shares Owned by Promoters

 

Dividend Yield

Definition: Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It’s calculated by dividing the annual dividends per share by the stock’s price per share.

Example: If a company pays an annual dividend of ₹5 per share and its stock price is ₹100, the dividend yield would be:

Dividend Yield=Annual Dividend per Share/Share Price=5/100=0.05 or 5%

Promoter Holding

Definition: Promoter holding refers to the percentage of a company's shares that are held by the promoters or founding members. It reflects the level of control and commitment of the promoters towards the company.

Example: If a company has a total of 1 million shares, and promoters hold 300,000 shares, the promoter holding percentage would be:

Promoter Holding=Promoter Shares/Total Shares×100

300,000/1,000,000×100=30%