Stock Market (09:15 – 15:30)

 09:00 – 09:15: - Pre-Order Market Session – To remove the huge fluctuations when market starts,
and to save the interest of small investors. 09:00 – 09:08 is the time when investors buy and sells
stock and small investors can analyse the stock by analysing these 8 minutes. 09:08 – 09:11 is the
time of checking for enough selling for buying (just for stabilization). 09:11-09:15 is the time to see
the movement of stock. There is not much movement in these 4 minutes of stock market.
 15:30 – 16:00 – Broker’s Stock Market where Investors can’t participate. Market Close price is
according to Broker’s Market Closing Time.
 16:00 – 09:00 - After Market Hours
- All orders placed in this time frame will be executed tomorrow morning at 09:15 AM
and is known as After Market Orders (AMO).
 Closing Price (Previous day) and Opening Price (Today) of same stock will be different because of
AMO.
 If Company is “. ltd”, it will be a Public Company, but it’s not necessary that the company should be
listed on Stock Exchange.
 3 A/c for Trading in Stock Market: - Trading A/c, Demat A/c, Saving A/c
 2014 BSE Stock Price Increase (Modi Govt): - Stable Government (Same decisions of govt.)
 2008 Crises - Lehman Brothers Bankruptcy – 4 th Largest Investment Bank in US
- Satyam Computers Scam
 Long Term Capital Gains and Dividends are Tax-Free s.t. limits
 Find limits? Dividends are tax-free up to Rs. 10 Lac, above that, tax will be charged at 10%.
 100% Dividend – 100% of Face Value of Share
 Face Value – Share Price of Company bought by the promoters (Face Value should be Multiple of 1
even after Stock Split)
 Promoters - Who starts the company
- decides the Face Value of Company
 If company is listed in stock exchange – Dematerialized Securities (DEMAT A/c)
 Premium – Price above Face Value paid by shareholders (Issue Price = Face Value + Premium)
 Listed Price – Price of Share on which Company was listed on stock exchange
 Turnover (Sales) is Top Line, and Profit after Tax is Bottom Line
 Past Prospects: - Compare Turnover and PAT
- Compare Share Price of Company (Consider Stock Split)
 Stock Split – Reducing the Face Value of Stock in same proportion of Reduction in Market
Capitalization (Price of stock). Stock Split is done for reducing the Stock price so that small investors
can invest their money into the respective stock. More Money of Investors would benefit the
company. With Stock Split, the value for money would be same for previous shareholders and
promoters who had already paid the previous face value. (E.g. – Reduction in Face value will Increase
the no. of shares for Shareholders and promoters in the same proportion).
 Market Price on NSE and BSE could be different because of different market demand and supply
 Gap-Up Opening: – Increase in Opening Stock Price comparing with Previous day Closing Price
 Gap-Down Opening: – Decrease in Opening Stock Price comparing with Previous day Closing Price
 Unch: - Unchanged Price of Opening and Closing Stock Price (Rare Scenario)
 Bid Price (Qty): - Bid means Best Buy Price, Qty means no. of Buy Orders
 Offer Price (Qty): - Offer means Best Selling Price, Qty means no. of Sell Orders
 Volume – No. of Shares Traded (E.g.: X buys 100 shares and Y sells 100 shares in a day, Volume will
be 100 and not 200)
 Bonus Ratio: - 1:2 means that you will get 1 free share for every 2 shares you are holding
 For Taking Bonus, you should have shares of company one day before Ex-Bonus Date
 If Bonus ratio is 1:1, share price will be halved on Ex-Bonus Date.
 There are 3 dates, i.e. Announcement Date, Record Date, and Ex-Bonus Date. Announcement date is
when company announces bonus, Ex-Bonus Date is when share price reduces in proportion to the
Bonus announced, Record date is when you should have shares in your Demat account.
 Can’t buy shares directly from stock exchange. Members of stock exchange (Brokers) are the
intermediaries for buying the stock.
 D/F types of Investors: - RII (Retail Individual Investors >= Rs. 2 Lac), HNI (High Net-Worth Individual
< Rs. 2 Lac), DII (Domestic Institutional Investor – Insurance Company, Banks, Mutual Funds), FII/FPI
(Foreign Institutional/Portfolio Investor – Foreign Funding).
 Issuers are the company whose stock Investor will buy or sell
 T+2 days: - If I am buyer of stock, the stock will be reflected in my Demat account after 2-Business
Days. If I am seller of stock, cash of sales will be reflected in my account after 2-Business Days.
 NSE: - National Securities Clearing Corporation Ltd. (NSCCL)
 BSE: - Indian Clearing Corporation Ltd. (ICCL)
 MSEI: - Metropolitan Clear (For Trading of Gold, Silver, Grains, etc)
 2 Depositories (Converting Physical shares into Electronic shares through Brokers)
- National Securities Depository Ltd. (NSDL)
- Central Depository Services Ltd. (CDSL)

P/E RATIO = SHARE PRICE / EPS

 Generally, Less P/E value denotes more Profit for investors when compared with High P/E value
 Also check the past growth trend. If Profit is increasing at a higher rate, the company P/E will reduce
in next year. No matter if the company shows high P/E, first check its Profit growth over past few
years to know the exact position of the company.
 For some industry (like Real Estate), P/E ratio can’t be chosen for checking the health of company.
This is because this type of industry has different profits in different year i.e. unstable profits. Hence,
unstable profits cannot be used for analysing the P/E Ratio. For these types of industry, we check
Price/Book Ratio.

Bank Overdraft
A bank account overdraft happens when an individual’s bank account balance goes down to below
zero, resulting in a negative balance. It usually happens when there are no more funds in the
account in question, but an outstanding transaction is processed through the account, leading to the
account holder incurring a debt.

Types of Bank Overdraft:

1. Authorized Bank Overdraft –

 Arrangement between Account holder and Bank in advance
 Each party agrees on the specified borrowing limit
 Fee plus high interest is charged on daily, or weekly, or monthly basis
 Can be expensive, especially if the borrowed amount is small
2. Unauthorized Bank Overdraft –
 No arrangement between parties in advance
 With Prior Agreement, but if account holder has gone beyond its agreed overdraft limit
 Higher Fees, More expensive
 Bull Market
 Market where faith of uptrend will continue in long run, i.e. higher stock price will continue in future
 Here, country’s economy is strong and employment level is high.

Bear Market
 Market falling 20% or more from recent highs, i.e. stock price continuously dropping
 Here, country’s economy will slow down and unemployment level will rise as company begin laying
off workers.

Financial Analysis
 Study current economic state of market, industry, company or project
 Present results as easy to understand reports
 Evaluate profitability, viability, stability
 Helps in making decisions like investment, purchase or sale of share and stocks
 Important documents – Balance Sheet, Cash Flow Statement, Income Statement

 Balance Sheet: - Shows current Financial Status

 Cash Flow Statement: - Ability to manage money
1. Cash Flow from Operating Activities (Revenues, Operating Expenses)
2. Cash Flow from Investing Activities (Sale or Purchase of Assets)
3. Cash Flow from Financing Activities (Issuing Shares, Raising Debt)
 Income Statement: - Performance over a period of time

Key Responsibilities of Financial Analyst

 Monitor and create financial models
 Identify trends, relate various documents, recommend action plans
 Help to make decisions regarding capital budgeting, expenditure planning, investments, etc.
 Data Reconciliation

Debt is preferred over Equity

 In the Long run, Debt is cheaper than Equity
 Debt gives you Tax Benefit
 Ownership remains with Investor in case of Debt
 More time to actually to run a Company

Leverage Ratios (Study more Ratios)

 Level of Debt against other statement
 Indicates if a company can pay off its debt on time or not
 Earnings from operations > Interest on debt

Primary reasons for Mergers and Acquisition

 Enter new Markets
 Deal with Competitors
 Gain new Technology
 Save Cost
 Improve the Market Share
Contingency Liability
A contingent liability is a liability that may occur depending on the outcome of an uncertain future
event. A contingent liability is recorded if the contingency is likely and the amount of the liability can
be reasonably estimated. The liability may be disclosed in a footnote on the financial statements
unless both conditions are not met.

Goodwill
Goodwill arises when a company acquires another entire business. The amount of goodwill is the
cost to purchase the business minus the fair market value of the tangible assets, the intangible
assets that can be identified, and the liabilities obtained in the purchase.

Minority Interest
A minority interest is ownership or interest of less than 50% of an enterprise. The term can refer to
either stock ownership or a partnership interest in a company. The minority interest of a company is
held by an investor or another organization other than the parent company. Minority interests
generally come with some rights for the stakeholder such as the participation in sales and certain
audit rights. A minority interest shows up as a noncurrent liability on the balance sheet of companies
with a majority interest in a company. This represents the proportion of its subsidiaries owned by
minority shareholders.

Non-Performing Assets
A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or in
arrears. A loan is in arrears when principal or interest payments are late or missed. A loan is in
default when the lender considers the loan agreement to be broken and the debtor is unable to
meet his obligations.

Capital Adequacy Ratio

The Capital Adequacy Ratio set standards for banks by looking at a bank’s ability to pay liabilities,
and respond to credit risks and operational risks. A bank that has a good CAR has enough capital to
absorb potential losses. Thus, it has less risk of becoming insolvent and losing depositors’ money.

Working Capital – Positive or Negative?

 Owner’s Perspective: -
Owner wants 0 Receivables as we always want that our Receivables pay us asap. Secondly, we want
lower Inventory at a particular time. These 2 factors lower the Current Assets of Firm. Owner always
want to pay to its Accounts Payables in future ignoring current period. This makes the value of
Current Liability higher. At last, Owners / Analyst always want a negative working capital.

 Banker’s Perspective: - CA > CL

Financial Ratios

1. Profitability Ratio (Company Profitable or not)

 Operating Profit Margin = Operating Profit / Sales
Operating Profit / EBITDA / EBIT = Operating Revenue – Operating Loss

 Net Profit Margin = Net Profit / Sales

2. Return Ratios (whether it generates returns for its shareholders, and other stakeholders)
 Return on Capital Employed (ROCE) = EBIT / (Shareholder Funds + Loans)
 = EBIT(1-t) / Total Assets
 Return on Net Worth (RONW) = Net Profit / (Share Capital + Reserves)
3. Coverage Ratio (whether the company will meet its obligation in terms of debt and interest)
 Interest Coverage Ratio = EBIT / Interest

4. Stability Ratio (Extension of Coverage Ratio)

 Debt / Equity = Long Term Debt / Equity

5. Liquidity Ratio (whether the company is solvent. Solvency means for making payment today, do
the company has sufficient cash or asset)
 Current Ratio = Current Assets / Current Liability
 Quick Ratio = (Cash + Receivables) / Current Liabilities

6. Turnover Ratios (Efficiency of a company)

 Inventory Turnover Ratio = Sales / Inventory
 Receivables Turnover Ratio = Sales / Account Receivables
 Asset Turnover Ratio = Sales / Total Assets
 Fixed Asset Turnover Ratio = Sales / Fixed Assets

Buyback,

Bonus,

how is Oil Price and Currency Related? -How much oil do we import, if prices lower-impact on
country’s foreign reserve