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Welcome to FIN-TECHI! Greetings from author.

Welcome to FIN-TECHI! greetings from author.

"Financial freedom is a mental emotional and educational process"

"The science of today is the technology of tomorrow"
Read this small story to brush up your investing knowledge

Share+Market+planets

PL statement and Balance sheet are the two important data sheets to be analysed before investing in a company. Some important terms in PL statement and balance sheet are as follows.
CMPDEBTFace valueBook value, COGS, EBITDA, PAT, Reserves, Dividend, EPS, PE ratio
Ok, Let me tell you a scenario by which one can easily understand these terms. For example,
I have started and running a burger company. I have registered it in SEBI and entered IPO (Initial Public Offering) after 3 years .The total fund raised be 1 Lac â‚¹. I issued 1000 shares of each 100 â‚¹. Let the current market price of my company's share be 120 â‚¹.
Assume that I have taken money from the bank which is my debt. The price of the share when my company entered IPO is called Face value. My company went public by raising 1 lac capital through the issue of 1000 shares, so the face value of a share would be â‚¹10Book value is the actual price of the share or the actual expenses of a company from 1 share.
Let the cost of making a burger be 20 ₹ which is called as COGS (Cost of Goods Sold). I decide to sell the burger for 50 ₹. After a lot of hard work I sold 1 burger in 3 months. So, the profit should be 30?. Obviously no. Because I need to pay for my employers, maintenance, taxes, interest etc..
So, the 30 which I earned was EBITDA (Earnings before interest tax depreciation and amortization). So after clearing EBITDA, my profit is 10 â‚¹. This 10 ₹ is called as PAT (Profit after tax). After 3 Quarters, my company made a huge profit out of which I paid repaid my interest and half of my debt. So , some more money will be left which is termed as Reserves.
All is well, So I wish I could do something for my shareholders. So I pay them some percent of money which is called as Dividend. After some months , I see a gradual growth of my company. I see my share price surging. So, what I do, I divide my company's profit with the total number of shares issued.
That gives my EPS (Earnings per share). Apart from these , there is a term called PE Ratio (Price to expenses). This ratio determines whether my company's stocks are overvalued or undervalued.
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Alright the story is over, let's analyse my company.
CMP: 120
CMP must be always greater than book value. And yes it is.
Debt : 10,000
Dept should be as low as possible, because only the company is gonna repay it with interest.
Face value: 10
Book value: 65
CMP should never fall below book value.
Cogs : 20
Ebitda : 30
Pat : 10
When they have a better records of EBITDA and pat, it directly means that , the company is good at reducing the taxes. This leads to more profit.
Reserves : 35,000
It should be growing continuously.That's great, cause we have less dept and more reserves
Dividend: 10%
ie , I give my share holders , 10 percent of number of shares bought by them for free. So, there is liquidity in my company. That is necessary.

Eps : 7.5

That's a decent number. Cause, for 100₹ the earning is 7.5 ₹ .
PE ratio : 100/7.5 equals 13.33
That's descent
  • These values varies with respect to time.
So, Is it a good company to buy. It can be concluded only by analysing these data for months. Comparison matters a lot. If they are doing good the company's performance is also good.


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