THE INSTIUTE OF COST ACCOUNTANTS OF

INDIA
GURGAON CHAPTER - NIRC
(Statuatory Body under an act of Parliament)
Shares our Gratitude to the DAV institution for being the
“KNOWLEDGE PARTNER”
And
Honoured to be the Part of this 2 days event of B-FINSMART
What is Return on Capital Employed?

 ROCE is a key measure of profitability for companies and is used to assess how
efficiently a company is using its capital to generate profits. Capital
employed is calculated by adding the company's long-term debt and
shareholders' equity.

 A high ROCE indicates that a company is using its capital effectively and is
generating a high return on the investment.

 A low ROCE indicates that a company is not using its capital efficiently and is
not generating a high return on the investment.
How Do You Calculate Return On Capital Employed?

 ROCE = EBIT / Capital Employed

To calculate ROCE, you need to know the company's net income (profit) and its
capital employed.
 Earnings before interest and tax (EBIT) is the company’s profit, including all
expenses except interest and tax expenses
Capital employed is made up of two components: shareholders' equity and debt.
 Shareholders' equity is the total amount of money that shareholders have
invested in the company.
 Debt is the total amount of money that the company has borrowed from
banks or other lenders.
RETURN ON EQUITY

 ROE measures how effectively a company is using investors’ money.

 ROE is an important metric for investors to evaluate profitable investment

opportunities. Companies with higher ROE attracts more investors as it
indicates they are better at retaining profit from shareholders’ equity.

 This is a scale that primarily looks at how much profit an investor makes over
a specified period from their investment in a particular company.

 ROE is primarily concerned with stocks and the stock market.

How Do You Calculate Return On Equity?
 ROE= Net Income/ shareholder’s equity

 Company’s net income is the value after subtracting COGS, depreciation,

amortisation, interest, and taxes from sales revenue.
 The next variable in the formula is shareholder equity, which is the difference
between a company’s asset and liability. It signifies the amount left for
shareholders if the company has to write off all its liability with its assets.

ROE tells you about the financial soundness of a company – strength of its
financial and organisational framework. If a company boasts a higher return on
equity, it signifies that the company is doing better than its peers in generating
higher profit than shareholder equities. It is a positive indication for
prospective investors.
PROMOTER HOLDING
 The promoter holding is the percentage of a company's shares owned by its
promoters. Promoters are individuals or entities that have founded the company
or have been instrumental in its growth and success.
 Promoter holding is when the promoters may have their shares in various forms,
such as through direct ownership or their holding companies or trusts. In some
cases, promoters may also hold shares through their family members or relatives.
 Generally, companies with higher promoter holdings are considered safer
investments compared to those with lower promoter stakes. This is because if
promoters themselves believe that the company's stocks are worth purchasing, it
indicates a higher likelihood of the company performing well in the future.
 In India, promoter holding is regulated by the Securities and Exchange Board of
India (SEBI), which mandates that promoters disclose their shareholding in the
company and any changes to it.
DII AND FII holding
Domestic Institutional
Investors (DIIs)
 Foreign institutional investors are
those who invest in India but are
not citizens of the country. These
investors are known as FIIs. They
can be any country's mutual funds
or insurance companies. They have
the ability to contribute to our
economy's growth.
 Since they are not Indian
companies, foreign institutional
investors must register
with SEBI and follow its rules. FIIs
are also known as FPIs (Foreign
Portfolio Investors).
Foreign institutional
investors (FIIs)
 Domestic Institutional Investors are
Indian investors who want to profit
by putting their money in the
Indian stock market. DIIs can put
capital in insurance
companies, mutual funds, liquid
funds, and other investments.
 For example - In India, the Life
Insurance Corporation is the most
prominent domestic institutional
investor (DII)
TYPES OF DII & FII
 Domestic Institutional  Foreign institutional
Investors (DIIs) - Types investors (FIIs) - Types

1. Indian Insurance Companies 1. Soverign Wealth Funds

2. Indian Mutual Funds Corporations 2. Foreign Government Agencies
3. Indian banks and Other Financial 3. International Multilateral
Institutions Organisations
4. Foreign Cental Banks
PLEDGE PERCENTAGE
 Pledging of shares is a financial arrangement in which the promoters of a
company pledge their shares as collateral to secure a loan or meet their
financial requirements. Pledge in the stock market means taking a loan
against its securities.
 Pledging shares does not attract any tax liability.
 Borrowers do not have to sell their shares, which means that if the markets
rise, the investment value also increases. At the same time, borrowers can
avail of additional cash without selling their shares.

 Borrowers can also benefit from additional advantages, such as dividend

income, which remain unaffected and are passed on to them.
DEBT MANAGEMENT
 Debt management is a way to get your debt under control through financial
planning and budgeting.

 The goal of a debt management plan is to use these strategies to help you
lower your current debt and move toward eliminating it. These strategies are
budgeting, paying early and reducing high interest debt first.
Debt Equity Ratio
 The debt-to-equity ratio (D/E ratio) shows how much debt a company has
compared to its assets. It is found by dividing a company's total debt by total
shareholder equity. A higher D/E ratio means the company may have a harder
time covering its liabilities.
 Debt Equity Ratio = Debt/Equity
 For example: 200,000 in debt / 100,000 in shareholders’ equity = 2 D/E ratio
 A D/E can also be expressed as a percentage. In this example, a D/E of 2 also
equals 200%. This means that for every 1 of the company owned by
shareholders, the business owes 2 to creditors.
 A good debt to equity ratio is around 1 to 1.5. However, the ideal debt to
equity ratio will vary depending on the industry because some industries use
more debt financing than others.
Increasing or Decreasing debt
 Increasing Debt means - Debt Raising means any raising of Financial
Indebtedness in any public or private loan or debt capital markets (including
any equity-linked instrument or other hybrid product). This will result interest
payments on debt reduce net income and cash flow.

 Decreasing Debt means - The lower the company's reliance on debt for asset
formation, the less risky the company is. Wiping out high-interest debt on a
timely basis will reduce the amount of total interest you'll end up paying, and
it'll free up money in your budget for other purposes
PRICE EARNING RATIO
 The price-to-earnings (P/E) ratio reveals the amount of payment that the
market is likely to make for a stock.
 The P/E ratio is derived by dividing the price of a stock by the stock’s
earnings. The market price of a stock tells you how much people are willing
to pay to own the shares, but the P/E ratio tells you whether the price
accurately reflects the company’s earnings potential, or it’s value over time.
 If a company’s stock is trading at INR 100 per share, for example, and the
company generates INR 4 per share in annual earnings, the P/E ratio of the
company’s stock would be INR 25 (100 / 4).
 A high PE ratio tells us that the price of a stock is high relative to earnings. In
contrast, a low PE ratio tells us that the price of a stock is low relative to
earnings.
BOOK VALUE
 The book value of a company is the net difference between that company’s
total assets and total liabilities, where book value reflects the total value of a
company’s assets that shareholders of that company would receive if the
company were to be liquidated.
 An asset’s book value is equivalent to its carrying value on the balance sheet.
 Book value is often lower than a company’s or asset’s market value.
 Book value per share (BVPS) and price-to-book (P/B) ratio are utilized in
fundamental analysis.