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Skillz

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Finance for the Uninitiated

Calling all non-commerce students.
Heres a special section just for you, to
help you with business jargon and make
business studies less formidable.

Forex :
Foreign Exchange means foreign currency i.e. currency
other than Indian Rupee & includes
(a) Deposits, credits & Balances payable in any foreign
currency.
(b) Drafts, Travelers Cheque, Letters of
Credit or Bills of Exchange expressed
or drawn in Indian Currency but
payable in any foreign currency.
(c) Drafts, Travelers Cheque, Letters of
Credit or Bills of Exchange drawn by
Banks, Institutions or Persons outside
India, But payable in Indian currency.
For e.g. Dollar, Euro, Sterling Pound
are foreign currencies. Similarly, a draft drawn by New
York based bank payable in Indian rupees is a Foreign
Exchange. Also Draft drawn on Bank of India payable at
London is a Foreign Exchange.
EPS:
EPS or Earning Per Share measures the profit available
to Equity Shareholders on a per share basis. It is calculated
by dividing the profits available to Equity Shareholders
i.e. Net profit after tax & Preference dividend by the no.
of outstanding shares. As a profitability ratio, the EPS
can be used to draw inferences on the basis of (i) its trends
over a period of time, (ii) comparison with EPS of other
firms,(iii) comparison with the Industry average for the
purpose of making investment in shares.
For e.g. Net profit after tax & preference dividend of
ABC ltd. is Rs.14, 00,000 & no of shares outstanding are
140000; the EPS in this case is Rs.10 per share.
P/E Ratio:
The P/E ratio means Price / Earning Ratio. It reflects
the price currently being paid by the market for each
rupee of currently reported earning per share (EPS). The
P/E ratio means investors expectations & the market
appraisal of the performance of the firm. This ratio is
computed by dividing market price per share by the
earning per share (EPS). This ratio is popularly used by
security analyst to assess a firms performance as
expected by investors.
For e.g. if market price per share of ABC Ltd. is Rs.20
& EPS is Rs.10 per share, then P/E ratio of ABC Ltd would
Advanc'edge MBA / June 2003

- Amita Ghag

be 2. This means for every rupee of EPS market would

pay the investor Rs.2
Capital Expenditure V/s Revenue Expenditure:
Capital Expenditure is an expenditure that results in
formation of a tangible or intangible fixed asset &
includes the expenses that enhance the
capacity or utility of the existing fixed asset.
Capital Expenditure is non-recurring in
nature.
For e.g. purchase of machinery or
goodwill is a capital expenditure. Also,
extension of existing office building is a
capital expenditure as it enhances the
capacity of the existing building.
The Revenue expenditure is an expenditure incurred
for smooth functioning of an entity. This includes all dayto-day expenses of an entity. These expenses are recurring
in nature. This expenditure doesnt result in formation
of any asset. For e.g. payment of electricity bill or repairs
to machinery.
Bearish V/s Bullish share market trends:
Share markets are said to bearish when the market
prices of shares are declining. The decrease in prices of
shares may not be continuous as there are daily
fluctuations. So if the prices are on decreasing trend
during a continuous period of 3-4 weeks the markets are
said to be bearish. Bullish trend is exactly opposite of
Bearish trend. During Bullish trend the prices of shares
are on rise. The rise in prices may not be continuous.
There may be a slight fall in prices after every rise because
of investors reaction to rise in prices. Hence if the prices
show increasing trend during a continuous period of 3-4
weeks, the markets are said to be bullish.
Market Cap:
The Market Capitalisation (or cap) of a stock is
simply the market value of all outstanding shares and is
computed by multiplying the market price by the number
of outstanding shares. For example, a publicly held
company with 10000 shares outstanding that trade at
Rs.20 each would have a market capitalisation of Rs. 2
lakhs.
The author is a practising Chartered Accountant