Some Basic concept of equities & selling equity through Mutual Funds Presentation By Prudent Corporate Advisory Services Ltd. - презентация

1 Some Basic concept of equities & selling equity through Mutual Funds Presentation By Prudent Corporate Advisory Services Ltd.

2 Equity … What is it? ….Anyone? Two words – Equality & Ownership Equity means equal ownership of the company Ownership since you own the shares that contributed the initial capital. Owners of Company Equal since, all equity shareholders are on par - if you ignore the no. of shares held Whole divided into Equal Parts

3 Price Each share trades at a particular price. What does it represent? Todays worth of all the future Profits Value of all the assets of the company – Tangible + Intangible (incl. Human) Price can never be Zero or Negative

4 Earnings Per Share (EPS) Accounting measure – Net Profit After Tax (PAT) of the company Hence, Earnings Per Share or EPS = PAT / Number of Equity Shares

5 Example … EPS Actual Figures. EPS as on 28 th Feb 2008

6 Price to Earnings ratio or P/E … Is a relative valuation measure Indicates how cheap/costly the shares are P/E Ratio or Multiple = Price / Earnings Per Share (EPS) Price – current market price Earnings – trailing Four quarters

7 Example … P/E Ratio Actual Figures. P/E as on 28th February 2008

8 Dividend Yield Dividend declared is on the Face Value of the shares Face value and Price of shares differ Dividend Yield = Dividend / Price Price – current market price Dividend – dividend declared per share

9 Example … Dividend Yield High Dividend Yield

10 Earnings Yield Inverse of P/E multiple Like Dividend Yield Earnings Yield = Earnings / Price Price – current market price Earnings – Earnings per share (EPS)

11 Example … Earnings Yield

12 Market Capitalisation Gives an idea of how big the company is Or the value of the business Market Capitalisation = Price * Number of Shares Price – current market price Number of Shares – Fully diluted eq. shares

13 Example … Market Capitalisation Large Cap Stock Mid Cap Stock

14 Relationship of Price & Earnings If Earnings Grow prices have to grow WHY ??? EPS of Infosys in 1998 was & Market price For Eg P/E of Infosys was Price / EPS = 457/18.28 = 25 Earnings Yield of Infosys =18.28*100/457 = 4%

15 Relationship of Price & Earnings The EPS of Infosys has grown to in If the price dont grow, then, P/E of Infosys would be 457/ 170 = 2.68 & Earnings Yield would be 170*100/457 = 37.19% Such a high earnings yield is so attractive that the price of Infosys has to increase. HENCE if earnings grow prices have to GROW

16 Infosys Price Movement Growth in Earnings & Growth in Prices matches in long run

17 E.g. 2) Bajaj Auto Price Movement Growth in Earnings & Growth in Prices broadly move together

18 Returns from Equity Returns from equities have trailed profit growth rates for very long Long term returns from equities = profit growth rates + dividends Over Real returns from US stocks : 7.0 % p.a. Real profit growth + real dividends yields : 6.7 %p.a.

19 Risk?? Equity: Returns are unsure! Equity – owners risk Volatility of returns Market Risk Sentiments in ST, Herd Mentality Debt: Credit risk – risk on principal as well as interest amt. Liquidity risk – not easy to get out? Interest Rate risk – possibly the biggest threat!

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21 Past Performance (BSE Sensex) YearSensexInvestment Rs ,00, ,0001,70,00,000 In past 28 years BSE Sensex has given about ????% returns This is in spite of … Two wars At least three major financial scandals Assassination of 2 prime ministers At least 3 recessionary periods 10 different governments and An unfair share of natural disasters