7 Financial Terms worth

knowing before investing in

Shares!

TERM

01

Business Cost
Example- Vada Pav King Ltd. is into the business of making Vada Pav. The expense of
Vada Pav making company incurs in its regular operations are its Business Cost

Raw Material cost

Expenses on potatoes, onion, oil, spices, gram flour

and pav

Power & Fuel cost

Expenses on kerosene or cooking gas to make vada

and electricity to light the shop

Employee Cost

Salaries to employees involved in making &

distribution of vada pav

Rent Cost

Rent paid for the shop

Sales Cost

Expense of advertisement & Sales management

Profit & Loss Account shows the

TERM

02

Profit and Loss

financial performance of the

company during a specific period of
time usually a quarter or year. It
summarizes the revenue, costs and
expenses incurred to calculate net
profit or loss. It also shows the
ability of a company to generate
profit by increasing revenue and/or
reducing costs

For example
Annual Result (period of 12 months) for
the year ending 31st Mar 2014
Quarter Result (period of 3 months) for
the quarter ending 30th Jun 2014

Balance Sheet

Balance sheet
Shows the financial position of the
company at a specific point in time. It
summarizes a company's assets,
liabilities and shareholders' equity
which give investors an idea as to
what the company owns and owes,
as well as the amount invested by the
shareholders.

TERM

03

Time

Most of Financial Companies follow

Financial year from 1st April to 31st March

TERM

04

Net Profit
Margin
Calculate Formula
Net Profit Margin = Profit After Tax/Net Sales*100

Net Profit Margin is an indicator

of overall profitability of the
business i.e. how efficiently it
is converting its sales into
profits based on its pricing
power and control over its
costs.

ProStock Example

Particulars

Vada Pav King

Net Profit Rs

30

Net Sales Rs

150

Net Profit Margin

30/150*100

In this case Net Profit Margin is 20%

(%)

20

TERM

05

Earning Per
Share

Calculate Formula
Earning Per Share = Net Profit / Number of
Companys Shares

Earnings Per Share is that portion of

companys profit for one Share, out of
total number of shares of company. Its
tells the return earned by company on
one share value.
The Earnings Per Share is a useful measure
of profitability as investors usually look
for companies with steadily increasing
earnings per share. Growth in EPS is an
important measure of management
performance because it shows how
much money the company is making for
its shareholders.

ProStock Example

Particulars

Vada Pav King

Net Profit Rs

300

Number of Shares
Outstanding

10

Earning Per Share

300/10

In this case Earning Per Share is Rs 30

(Rs )

30

TERM

06

Price Earning
Ratio

Calculate Formula
Price to Earning Ratio = Current Share Price/Earning
Per Share

Price to Earning Ratio tells how much are

investors willing to pay for a stock
based on its current earnings.
It tells, how many years it will take to get
back the investment by company
profits.

ProStock Example

Particulars

Vada Pav King

Current Share Price Rs

450

Earning Per Share Rs

30

Price to Earning Ratio

450/30

15

In this case it will take 15 years to recover the

investment of Rs 450 from the earning of Rs 30

TERM

07

Book Value
Per share

Calculate Formula
Book Value Per Share = (Shareholders Equity
Preference Stock)/Weighted Average Number
of Shares Outstanding

Book Value Per Share indicates the level of

safety associated with each common
share after removing effects of
liabilities.
Tells ,how much an investor can realize in
the event of closing down the company.
This can also be compared with current
stock price to decide about under/over
valuation of the stock.

ProStock Example

Particulars

Vada Pav King

Shareholders Equity

60

Number of Shares
Outstanding

Book Value Per Share

60/1

(Rs )

60

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