Stock Market Education

Basic understanding of how stock markets work is extremely necessary when you deploy your hard earned money in anticipation of profiting from your decisions. Like i have always told – stock market can make even a monkey feel empowered from day 1 – when he invests money without any knowledge & stands to make profit out of his first transaction – as the probability of winning is 50% i.e. stocks can either go up or down. Unlike in any other profession where it requires you to make an effort to understand the basics for you to thrive for generating profits. So this learning here helps with the nitty grits of stock markets before you welcome yourself to the world of investments.

Businesses thrive on capital – There are two broad types of securities that are issued by seekers of capital from investors: Equity and Debt. When a business needs capital to fund its operations and expansion, it makes a choice between these two types of securities.

Equity capital / share capital – is available for the company to use as long as it is needed; debt capital will have to be returned after the specified time. Equity investors do not enjoy any fixed return or return of principal invested; debt investors earn a fixed rate of interest and return of principal at maturity. Equity investors are owners of the business; debt investors are lenders to the business. Equity investors participate in the management of the business; debt investors do not. Residual profits of the business belong to the equity investors; debt investors’ claim is restricted to the periodic fixed coupons and principal repayment on maturity.

Now with this basic understanding – lets learn various terminologies that are used in equity market.

Equity Market & its terminologies

1. Face Value (FV)
2. Book Value (BV)
3. Market Value
4. Market Capitalisation (Market Cap)
5. Earnings
6. Earnings Per Share (EPS)
7. Dividend Per Share (DPS)
8. Price to Earnings Ratio (PE Ratio)
9. Price to Book Value Ratio (P/BV)
10. Debt to Equity Ratio (D/E)

START – Equity Market Terminologies

Basics of Profit & Loss Account

(Make sure you read in the same order for better understanding of examples used in connotation with theory)

Sample Profit & Loss account.

1. Net Sales
2. Direct Costs
3. Earnings Before Interest Tax & Depreciation and Amortisation
4. EBIDTA Margin
5. Depreciation / Amortisation AND EBIT
6. Interest
7. Other Income
8. Profit Before Tax
9. Tax
10. Profit After Tax

START – Basics of Profit & Loss Account

Basics of Balance Sheet

(Make sure you read in the same order for better understanding of examples used in connotation with theory)

Sample Balance Sheet, Introduction & Example:

1. (a) Equity
2. (b) Reserves & Surplus
3. (c) Net-worth
4. (d) Long Term Debt
5. (e) Current Liabilities
6. (f) Fixed Assets
7. (g) Current Assets

START – Basics of Balance Sheet