GLOSSARY EPS ROCE DE Profit Margin PE BV Dividend Yield Cash Flow ROE PBV Market Cap PAT

1. Earnings Per Share (EPS): Earnings Per Share is a company's net profit divided by its total number of shares. EPS = Net Profit/ No of Shares If a company issues dividends, then the dividend is subtracted from Net Income to get Net Profit. For example, assume that a company: 1. has a net income of 250 crores 2. pays out 50 crores as dividends 3. has 10 crore shares The EPS would be (250-50)/10 which is equal to Rs.20 Two companies can generate the same EPS number, but the number of shares may be different for both. In that case the company generating this EPS with less number of shares would be considered a better company as it is more efficiently using its capital. EPS is the most important variable in determining a share's price. It is used to calculate the price-to-earnings valuation ratio (PE) which is explained below. 2. Price to Earnings ratio (PE): Price to Earnings ratio is the current market price of a share divided by its EPS. PE = Current market price/ EPS For example : if the market price for a share is Rs. 100 and EPS is 10,

PE = 100/10 =10 So PE is the amount the investors are willing to pay for one rupee of the company's Earnings or EPS. PE and EPS have to be studied in comparison with other companies in the same industry. You cannot compare the PE of a pharma company with that of a steel company. Buying a share at a low PE often indicates that you are buying the stock at a discounted price. 3. Return on Equity (ROE): Return on Equity is measured as net profit divided by equity capital. ROE = Net profit after tax/ Shareholders' equity A higher ROE indicates that the company has been utilising its shareholders capital efficiently. However not all high ROE yielding companies are good investments. Some companies like consulting firms have high ROE as they require minimal assets. On the other hand, oil refineries need huge infrastructure, therefore heavy investment. So it cannot generate high ROE right away. But that does not mean it is not a good investment. ROE is best used to compare companies in the same industry. 4. Return on Capital Employed (ROCE): Return on Capital employed is a ratio that indicates how efficiently the company is using its overall capital to generate revenue. Comparison between companies based on ROCE is more appropriate when done among companies from the same industry. ROCE = EBIT/ (Total Assets-Current Liabilities) where EBIT is the Earnings before Interest and Tax. ROCE should be higher than the rate at which the company borrows. Otherwise an increase in borrowings/debt will reduce the shareholders' earnings. 5.Book Value (BV): It is the value of the equity carried on the balance sheet. In other words it is the total value of the company's assets that shareholders would receive if a company were liquidated. It is also called the company's net worth. Book value is used in the PBV ratio explained below.

6. Price to Book Value (PBV): It is obtained by dividing the company's price per share by its book value per share. Book value per share is reached by dividing the book value by the total number of shares. 7. Debt to Equity Ratio (DE): The Debt to equity ratio is a measure of how much debt a company can afford. It indicates what proportion of equity and debt the company is using to finance its assets. DE = Total liabilities/ Shareholders' equity Investing in a company with a high DE is very risky, especially when interest rates are rising. 8. Dividend Yield: Dividend yield shows how much a company pays out in dividends each year relative to its share price. Dividend Yield = annual dividend per share / stock's price per share 9. Market Cap: Market cap is an abbreviation of market capitalization.It is calculated by multiplying the current price of a stock by the number of shares outstanding. It is a good practice to set up a benchmark for market cap (Example: 500crore). This will help in eliminating very small companies which are difficult to track from your portfolio. 10. Profit Margin: It is a measure of profitability of a company and is calculated by dividing a company's net profit by its sales. 11. Cash Flow: Cash flow refers to the money earned in a business from selling its products and the money spent on all aspects of production. The movement of money in and out of a business and the resulting availability of cash. Cash flow refers to the movement of money in and out of a business and the resulting availability of cash. It is a measure of a company's financial health.

12.Profit after Tax (PAT): Profit after Tax (PAT) is the net profit earned by the company after deducting all interest, depreciation and tax. It is a measure of how well a company controls its costs after taxes.