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Price / Earnings: Interpretation #1In one of my first posts , I talked about the main idea of ​​my investment strategy: buy great “things” during the sales season . This rule can be applied to any object of the material world: real estate, cars, clothes, food and, of course, shares of public companies. However, a seemingly simple idea requires the ability to understand both the quality of “things” and their value. Suppose we have solved the issue with quality (*). (*) A very bold assumption, I realize that. However, the following posts will cover this topic in more detail. Be a little patient. So, we know the signs of a high-quality thing and are able to define it skilfully enough. But what about its cost? "Easy-peasy!" you will say, "For example, I know that the Mercedes-Benz plant produces high-quality cars, so I should just find out the prices for a certain model in different car dealerships and choose the cheapest one." "Great plan!" I will say. But what about shares of public companies? Even if you find a fundamentally strong company, how do you know if it is expensive or cheap? Let's imagine that the company is also a machine. A machine that makes profit. It needs to be fed with resources, things are happening in there, some cogs are turning, and as a result we get earnings. This is its main goal and purpose. Each machine has its own name, such as Apple or McDonald's. It has its own resources and mechanisms, but it produces one product – earnings. Now let’s suppose that the capitalization of the company is the value of such a machine. Let's see how much Apple and McDonald's cost today: Apple - $2.538 trillion McDonald's - $202.552 billion We see that Apple is more than 10 times more expensive than McDonald's. But is it really so from an investor's point of view? The paradox is that we can't say for sure that Apple is 10 times more expensive than McDonald's until we divide each company's value by its earnings. Why exactly? Let's count and it will become clear: Apple's diluted net income - $99.803 a year McDonald's diluted net income - $6.177 billion a year Now read this phrase slowly, and if necessary, several times: “The value is what we pay now. Earnings are what we get all the time” . To understand how many dollars we need to pay now for the production of 1 dollar of profit a year, we need to divide the value of the company (its capitalization) by its annual profit. We get: Apple - $25.43 McDonald’s - $32.79 It turns out that in order to get $1 profit a year, for Apple we need to pay $25.43, and for McDonald's - $32.79. Wow! Currently, I believe that Apple appears cheaper than McDonald's. To remember this information better, imagine two machines that produce one-dollar bills at the same rate (once a year). In the case of an Apple machine, you pay $25.43 to issue this bill, and in the case of a McDonald’s machine, you pay $32.70. Which one will you choose? So, if we remove the $ symbol from these numbers, we get the world's most famous financial ratio Price/Earnings or P/E . It shows how much we, as investors, need to pay for the production of 1 unit of annual profit. And pay only once. There are two formulas for calculating this financial ratio: 1. P/E = Price of 1 share / Diluted EPS 2. P/E = Capitalization / Diluted Net Income Whatever formula you use, the result will be the same. By the way, I mainly use the Diluted Net Income instead of the regular one in my calculations. So do not be confused if you see a formula with a Net Income – you can calculate it this way as well. So, in the current publication, I have analyzed one of the interpretations of this financial ratio. But, in fact, there is another interpretation that I really like. It will help you realize which P/E level to choose for yourself. But more on that in the next post. See you!
NSE:NIFTYEducation
by Be_Capy
What can financial ratios tell us?In the previous post we learned what financial ratios are. These are ratios of various indicators from financial statements that help us draw conclusions about the fundamental strength of a company and its investment attractiveness. In the same post, I listed the financial ratios that I use in my strategy, with formulas for their calculations. Now let's take apart each of them and try to understand what they can tell us. - Diluted EPS . Some time ago I have already told about the essence of this indicator. I would like to add that this is the most influential indicator on the stock market. Financial analysts of investment companies literally compete in forecasts, what will be EPS in forthcoming reports of the company. If they agree that EPS will be positive, but what actually happens is that it is negative, the stock price may fall quite dramatically. Conversely, if EPS comes out above expectations - the stock is likely to rise strongly during the coverage period. - Price to Diluted EPS ratio . This is perhaps the best-known financial ratio for evaluating a company's investment appeal. It gives you an idea of how many years your investment in a stock will pay off if the current EPS is maintained. I have a particular take on this ratio, so I plan to devote a separate publication to it. - Gross margin, % . This is the size of the markup to the cost of the company's product (service) or, in other words, margin . It is impossible to say that small margin is bad, and large - good. Different companies may have different margins. Some sell millions of products by small margins and some sell thousands by large margins. And both of those companies may have the same gross margins. However, my preference is for those companies whose margins grow over time. This means that either the prices of the company's products (services) are going up, or the company is cutting production costs. - Operating expense ratio . This ratio is a great indicator of management's ability to manage a company's expenses. If the revenue increases and this ratio decreases, it means that the management is skillfully optimizing the operating expenses. If it is the other way around, shareholders should wonder how well management is handling current affairs. - ROE, % is a ratio reflecting the efficiency of a company's equity performance. If a company earned 5% of its equity, i.e. ROE = 5%, and the bank deposit rate = 7%, then shareholders have a reasonable question: why invest equity in business development, if it can be placed in a bank deposit and get more, without expending extra effort? In other words, ROE, % reflects the return on invested equity. If it is growing, it is definitely a positive factor for the company and the shareholders. - Days payable . This financial ratio is an excellent indicator of the solvency of the company. We can say that it is the number of days it will take the company to pay all debts to suppliers from its revenue. If the number of days is relatively small, it means that the company has no delays in paying for supplies and therefore no money problems. I consider less than 30 days to be acceptable, but over 90 days is critical. - Days sales outstanding . I already mentioned in my previous posts that when a company is having a bad sales situation, it may even sell its products on credit. Such debts accumulate in accounts receivable. Obviously, large accounts receivable are a risk for the company, because the debts may simply not be paid back. For ease of control over this indicator, they invented such a financial ratio as "Days sales outstanding". We can say that this is the number of days it will take the company to earn revenue equivalent to the accounts receivable. It's one thing if the receivables are 365 daily revenue and another if it's only 10 daily revenue. Like the previous ratio: less than 30 days is acceptable to me, but over 90 days is critical. - Inventory to revenue ratio . This is the amount of inventory in relation to revenue. Since inventory includes not only raw materials but also unsold products, this ratio can indicate sales problems. The more inventory a company has in relation to revenue, the worse it is. A ratio below 0.25 is acceptable to me; a ratio above 0.5 indicates that there are problems with sales. - Current ratio . This is the ratio of current assets to current liabilities. Remember, we said that current assets are easier and faster to sell than non-current, so they are also called quick assets. In the event of a crisis and lack of profit in the company, quick assets can be an excellent help to make payments on debts and settlements with suppliers. After all, they can be sold quickly enough to pay off these liabilities. To understand the size of this "safety cushion", the current ratio is calculated. The larger it is, the better. For me, a suitable current ratio is 2 or higher. But below 1 it does not suit me. - Interest coverage . We already know that loans play an important role in a company's operations. However, I am convinced that this role should not be the main one. If a company spends all of its profits to pay interest on loans, it is working for the bank, not for the shareholders. To find out how tangible interest on loans is for the company, the "Interest coverage" ratio was invented. According to the income statement, interest on loans is paid out of operating income. So if we divide the operating income by this interest, we get this ratio. It shows us how many times more the company earns than it spends on debt service. To me, the acceptable coverage ratio should be above 6, and below 3 is weak. - Debt to revenue ratio . This is a useful ratio that shows the overall picture of the company's debt situation. It can be interpreted the following way: it shows how much revenue should be earned in order to close all the debts. A debt to revenue ratio of less than 0.5 is positive. It means that half (or even less) of the annual revenue will be enough to close the debt. A debt to revenue ratio higher than 1 is considered a serious problem since the company does not even have enough annual revenue to pay off all of its debts. So, the financial ratios greatly simplify the process of fundamental analysis, because they allow you to quickly draw conclusions about the financial condition of the company, without looking up and down at its statements. You just look at ratios of key indicators and draw conclusions. In the next post, I will tell you about the king of all financial ratios - the Price to Diluted EPS ratio, or simply P/E. See you soon!
NSE:RELIANCEEducation
by Be_Capy
PostMortem on BankNifty Today & Analysis of 27 Mar 2023There are few important aspects to the price action today. We stuck to a small range today - it would have been good for intraday straddlers & short iron-fly, iron-condor strategy deployers. So we opened inline at 39484, many would argue that it was a gap up. But i wouldnt say that because of the price action from the previous session. As soon as we hit the last session's swing low, we got a bounce of 270 pts, but this did not sustain and we fell back to the same low point. We had a second bounce of 268pts between 11.30 to 12.45 & as expected this did not sustain as well. and fell back to the low point of the day again. Now between 13.25 to 14.35 we had the 3rd bounce of 383 pts & again we could not breakthrough the 39742 level. And we fell back to the low point of the day. The important aspect in today's price action is we had 4 tests of 39300 levels today (see cyan markers from chart). And none of them gave away. I am not saying that its a bullish sign, but its an area of importance. Either the volume traded today might be too low to create any volatility to break this zone or we may need some external triggers to break down. --- On NSE:BANKNIFTY minds i made 3 posts today "$BANKNIFTY we need a break of support 38690 for strong bearish momentum" at 10.14 "$BANKNIFTY option prices are not providing clear direction" at 13.39 "$BANKNIFTY needs to take out 39742 to go bullish" at 14.39 --- 15mts TF is looking at a sideways movement, i was hoping was a retest of 38690 levels today - but that did not happen. Instead the 39300 level came to rescue. I am seriously considering to mark a new SR zone at 39310. to view all 10 charts in today's discussion visit viswaram. com --- 1hr TF is still bearish to me, agree its taking some time for the new leg to form. If there are no fundamental news triggers i am expecting the 38690 levels to be taken out this week itself. Keeping my fingers crossed
NSE:BANKNIFTY
by viswaram
Financial ratios: digesting them togetherI hope that after studying the series of posts about company financial statements, you stopped being afraid of them. I suggest we build on that success and dive into the fascinating world of financial ratios. What is it? Let's look at the following example. Let's say you open up a company's balance sheet and see that the amount of debt is $100 million. Do you think this is a lot or a little? To me, it's definitely a big deal. But can we say the company has a huge debt based only on how we feel about it? I don't think so. However, if you find that a company that generates $10 billion in annual revenue has $100 million in debt (i.e. only 1% of revenue), what would you say then? That's objectively small, isn't it? It turns out that without correlating one indicator with another, we cannot draw any objective conclusion. This correlation is called the Financial Ratio . The recipe for a normal financial ratio is simple: we take one or two indicators from the financial statements, add some market data, put it all into a formula that includes a division operation - we obtain the financial ratio. In TradingView you can find a lot of financial ratios in the section Financials -> Statistics . However, I only use a few financial ratios which give me an idea about the financial situation of the company and its value: What can you notice when looking at this table? - Profit and revenue are frequent components of financial ratios because they are universal units of measurement for other reporting components. Just as length can be measured in feet and weight in pounds, a company's debts can be measured in revenues. - Some financial ratios are ratios, some are percentages, and some are days. - There are no financial ratios in the table whose data source is the Cash Flow Statement. The fact is that cash flows are rarely used in financial ratios because they can change drastically from quarter to quarter. This is especially true for financial and investment cash flow. That's why I recommend analyzing cash flows separately. In my next post, I'll break down each financial ratio from this table in detail and explain why I use them specifically. See you soon!
Editors' picks
NSE:BANKNIFTY1!Education
by Be_Capy
1
BANKNIFTY ANALYSIS FOR TOMORROW 13 MARCH 2023BankNifty Analysis for Tomorrow 13th March 2023 As per our analysis for Bank Nifty, we are expecting these lower levels tomorrow, kindly check the charts on 15 min time frame and act accordingly. Previous Close : 40488.75 Buyers can be active above : 40563.55 Level = TGT 1 : 40650.20 | TGT 2 : 40722.20 | TGT 3: 40831.70 Sellers can be active below: 40425.35 Level = TGT 1 : 40278.15 | TGT 2 : 40172.35 | TGT 3 : 40053.70 Disclaimer : All the provided levels are for educational purpose only, please do your own analysis before doing any trade in the live market or consult your financial advisor before act. Follow Us For More Updates in Future
NSE:BANKNIFTY
by MarkitVUE
10
Cash flow vibrationsIn the previous post we started to analyze the Cash flow statement. From it, we learned about the existence of three cash flows - operating cash flow, financial cash flow, and investment cash flow. Like three rivers, they fill the company's "lake of cash" (that is, they go with a "+" sign). However, there are three other rivers that flow out of our lake, preventing it from expanding indefinitely. What are their names? They have absolutely identical names: operating cash flow, financial cash flow, and investment cash flow (and they go with a "-" sign). Why so? Because all of the company's outgoing payments can also be divided into these three rivers: Operating payments include the purchase of raw materials, the payment of wages - everything related to the production and support of the product. Financial payments include repayment of debt and interest on it, payment of dividends, or buyback of shares from shareholders. Investment payments include the purchase of non-current assets (say, the purchase of additional buildings or shares in another company). If the inflows from the three rivers on the left are greater than the outflows into the rivers on the right, then our lake will increase in volume, meaning that the company's cash balances will grow. If the outflows into the three rivers on the right are greater than the inflows from the rivers on the left, the lake will become shallow and eventually dry up. So, the cash flow statement shows how much our lake has increased or decreased over the period (quarter or year). This report can be presented as four entries: Each value of A, B, and C is the difference between what came into our lake from the river and what flowed out of the lake by the river of the same name. That is, the value can be either positive or negative. How can we interpret the meanings of the different flows? Let's break down each of them. Operating cash flow . In a fundamentally strong company, it is the most stable and powerful river. The implication is that it should be the main source of "water" for our lake. Negative operating cash flow is an indicator of serious problems with the business because it means it is not generating money. Investment cash flow . This is the most unpredictable river, as sometimes it can be very powerful and sometimes it can flow like a thin trickle. This is due to the fact that the purchase or sale of non-current assets (recall that these may be buildings, equipment, shares in other companies) does not occur as regularly as operational activities. A sudden negative investment flow tells us about some big purchase. Shareholders do not always view such events positively, as they may consider it an unwise expenditure or a threat to dividend payments. Therefore, they may start to sell their shares, which causes their price to drop. If a big purchase is perceived as an opportunity to reach the next level and capture more market share, then we may see exactly the opposite effect - an increase in share price. Financial cash flow . A negative value of this cash flow can be seen as a very positive signal because it means that the company is either actively reducing its debt to creditors, or using the money to pay dividends, or spending the money to buy its own stock (*), or maybe all of these together. (*) Here you may ask, why would a company buy its own stock? Management sometimes does this when they are confident in the success of their business and want to support the growth of their stock. The company becomes a major buyer of its own stock for some time so that it begins to grow. The process itself is called share buyback . Positive financial cash flow, on the other hand, signals either an increase in debt or the sale of its own stock. As far as debt is concerned, you can't say that loans are bad for business. But there has to be a measure. But the sale by a company of its own shares is already an alarming signal to the current shareholders. It means that the company doesn't have enough money coming out of operating cash flow. There is another type of cash flow that is not a separate "river," but is used as information about how much cash the company has left to meet its obligations to creditors and shareholders. This is Free cash flow . It is simple to calculate: just subtract one of the components of the investment cash flow from the operating cash flow. This component is called Capital expenditures (often abbreviated as CAPEX). Capital expenditures include outgoing payments that go toward the purchase of non-current assets , such as land, buildings, equipment, etc. (Free cash flow = Operating cash flow - Capital expenditures) Free cash flow can be characterized as the "living" money that a company has created over a period, which can be used to repay loans, pay dividends, and buyback stocks from shareholders. If free cash flow is very weak or even negative, it is a reason for creditors, shareholders and investors to think about how the company is doing business. This concludes my discussion of the cash flow statement topic. Next time, let's talk about the magic ratios that you can get from a company's financial statements. They greatly facilitate the process of fundamental analysis and are widely used by investors around the world. We will talk about the so-called Financial Ratios . See you soon!
NSE:TATAMOTORSEducation
by Be_Capy
2
Cash flow statement or Three great riversToday we're going to start taking apart the third and final report that the company publishes each quarter and year - it's Cash flow statement. Remember, when we studied the balance sheet , we learned that one of the company's assets is cash in accounts. This is a very important asset because if the company doesn't have money in the account, it can't buy raw materials, pay employees' salaries, etc. What, in general, is a "company" in the eyes of an accountant? These are assets that have been purchased on credit or with equity, for the purpose of earning a net income for its shareholders or investing that income in further growth. That is, the source of cash in a company's account may be profits . But why do I say "may be"? The point is that it's possible to have a situation where profits are positive on the income statement, but there is no money physically in the account. To make sense of this, let's remember the workshop I use in all the examples. Suppose our master sold all of his boots on credit. That is, he was promised payment, but later. He ended up with a receivable in assets and, most interestingly, generated revenue. The accountant will calculate the revenue for these sales, despite the fact that the shop hasn't actually received the money yet. Then the accountant will deduct the expenses from the revenue, and the result will be a profit. But there is zero money in the account. So what should our master do? The orders are coming in, but there is nothing to pay for the raw materials. In such circumstances, while the master is waiting for the repayment of debts from customers, he himself borrows from the bank to top up his current account with money. Now let us make his situation more complicated. Let us assume that the money borrowed he still does not have enough, and the bank does not give more. The only thing left is to sell some of his property, that is, some of his assets. Remember, when we took apart the assets of the workshop , the master had shares in an oil company. This is something he could sell without hurting the production process. Then there is enough money in the checking account to produce boots uninterrupted. Of course, this is a wildly exaggerated example, since more often than not, profits are money, after all, and not the virtual records of an accountant. Nevertheless, I gave this example to make it clear that cash in the account and profit are related, but still different concepts. So what does the cash flow statement show? Let's engage our imagination again. Imagine a lake with three rivers flowing into it on the left and three rivers flowing out on the right. That is, on one side the lake feeds on water, and on the other side it gives it away. So the asset called "cash" on the balance sheet is the lake. And the amount of cash is the amount of water in that lake. Let's now name the three rivers that feed our lake. Let's call the first river the operating cash flow . When we receive the money from product sales, the lake is filled with water from the first river. The second river on the left is called the financial cash flow . This is when we receive financing from outside, or, to put it simply, we borrow. Since this is money received into the company's account, it also fills our lake. The third river let's call investment cash flow . This is the flow of money we get from the sale of the company's non-current assets. In the example with the master, these were assets in the form of oil company stock. Their sale led to the replenishment of our notional money lake. So we have a lake of money, which is filled thanks to three flows: operational, financial, and investment. That sounds great, but our lake is not only getting bigger, but it's also getting smaller through the three outgoing flows. I'll tell you about that in my next post. See you soon!
Editors' picks
NSE:HDFCBANKEducation
by Be_Capy
8
What should I look at in the Income statement?The famous value investor, Mohnish Pabrai , said in one of his lectures that when he visited Warren Buffett, he noticed a huge handbook with the financial statements of thousands of public companies. It's a very dull reading, isn't it? Indeed, if you focus on every statement item - you'll waste a lot of time and sooner or later fall asleep. However, if you look at the large volumes of information from the perspective of an intelligent investor, you can find great interest in the process. It is wise to identify for yourself the most important statement items and monitor them in retrospect (from quarter to quarter). In previous posts, we've broken down the major items on the Income statement and the EPS metric: Part 1: The Income statement: the place where profit lives Part 2: My precious-s-s-s EPS Let's now highlight the items that interest me first. These are: - Total revenue The growth of revenue shows that the company is doing a good job of marketing the product, it is in high demand, and the business is increasing its scale. - Gross profit This profit is identical to the concept of margin. Therefore, an increase in gross profit indicates an increase in the margin of the business, i.e. its profitability. - Operating expenses This item is a good demonstration of how the management team is dealing with cost reductions. If operating expenses are relatively low and decreasing while revenue is increasing, that's terrific work by management, and you can give it top marks. - Interest expense Interest on debts should not consume a company's profits, otherwise, it will not work for the shareholders, but for the banks. Therefore, this item should also be closely monitored. - Net income It's simple here. If a company does not make a profit for its shareholders, they will dump its shares*. *Now, of course, you can dispute with me and give the example of, let's say, Tesla shares. There was a time when they were rising, even when the company was making losses. Indeed, Elon Musk's charisma and grand plans did the trick - investors bought the company's stock at any price. You could say that our partner Mr. Market was truly crazy at the time. I'm sure you can find quite a few such examples. All such cases exist because investors believe in future profits and don't see current ones. However, it is important to remember that sooner or later Mr. Market sobers up, the hype around the company goes away, and its losses stay with you. - EPS Diluted You could say it's the money the company earns per common share. So, I'm finishing up a series of posts related to the Income statement. This statement shows how much the company earns and how much it spends over a period (quarter or year). We've also identified the items that you should definitely watch out for in this report. That's all for today. In the next post, we will break down the last of the three financial statements of a public company - the Cash flow statement. Goodbye and see you later!
NSE:NIFTYEducation
by Be_Capy
PostMortem on BankNifty Today & Analysis of 17 FEB 2023So today's price action confirms the move that we had yesterday was not fake. How many traders & investors would have been trapped on the long side when the 41629 resistance broke out? The prevailing trend was bearish, but when an important resistance gave away, it would have prompted lot of buyers into action. And once they deployed their funds we got the reversal. The dip could even be short term, may be it will negate in the coming week itself - but imagine the amount of money you would have lost over the last 2 days? Today's move in NSE:BANKNIFTY was nothing dramatic, agree that many would call it unexpected. But for analysts who have been following the series of events after the meltdown in Adani stocks - this should have been a not so difficult picking. Open was gap down at 41514 and the first 2 candles were in red - already doing the damage in opening 10mts. This set the trend rolling, we had a single leg of consistent fall of 1.57% ~ 652pts till 13.40.  The selling stopped near the 1st support level of 40868 and we also had a brief pull back of 0.65% ~ 267pts from 13.45 to 15.10.  This pull back ensured that the total fall of NSE:BANKNIFTY was only 1.2% ~ 499pts which is not so bad either. But there are some interesting things that happened The spike in volume of CE options traded, showing intense writing. The volumes spiked just after NSE:BANKNIFTY made the pull back ensuring the option sellers got good premiums too. The drop in options premium on the PE side after 14.50 aiding the view that the dip may not have further deep legs. If today's fall was that dramatic then the PE options should have retained their higher premiums. It can also be true that the premiums could spike on monday or tuesday if we have continuation pattern. And most of you would have seen the % spikes PE premiums hit. --- 15mts TF has negated the small bullish view that it had on 15th. From there we had 1 support break & retest of the 2nd support level. --- 1hr TF may be showing the range widening possibilities in the coming weeks. This could be because the selling came in only when NSE:BANKNIFTY went over the resistance - a common phenomenon associated when sellers are in control.
NSE:BANKNIFTY
by viswaram
My precious-s-s-s EPSIn the previous post , we began looking at the Income statement that the company publishes for each quarter and year. The report contains important information about different types of profits : gross profit, operating income, pretax income, and net income. Net income can serve both as a source of further investment in the business and as a source of dividend payments to shareholders (of course, if a majority of shareholders vote to pay dividends). Now let's break down the types of stock on which dividends can be paid. There are only two: preferred stock and common stock . We know from my earlier post that a stock gives you the right to vote at a general meeting of shareholders, the right to receive dividends if the majority voted for them, and the right to part of the bankrupt company's assets if something is left after paying all debts to creditors. So, this is all about common stock. But sometimes a company, along with its common stock, also issues so-called preferred stock. What advantages do they have over common stock? - They give priority rights to receive dividends. That is, if shareholders have decided to pay dividends, the owners of preferred shares must receive dividends, but the owners of common shares may be deprived because of the same decision of the shareholders. - The company may provide for a fixed amount of dividend on preferred shares. That is, if the decision was made to pay a dividend, preferred stockholders will receive the fixed dividend that the company established when it issued the shares. - If the company goes bankrupt, the assets that remain after the debts are paid are distributed to the preferred shareholders first, and then to the common shareholders. In exchange for these privileges, the owners of such shares do not have the right to vote at the general meeting of shareholders. It should be said that preferred shares are not often issued, but they do exist in some companies. The specific rights of shareholders of preferred shares are prescribed in the founding documents of the company. Now back to the income statement. Earlier we looked at the concept of net income. Since most investments are made in common stock, it would be useful to know what net income would remain if dividends were paid on preferred stock (I remind you: this depends on the decision of the majority of common stockholders). To do this, the income statement has the following line item: - Net income available to common stockholders (Net income available to common stockholders = Net income - Dividends on preferred stock) When it is calculated, the amount of dividends on preferred stock is subtracted from net income. This is the profit that can be used to pay dividends on common stock. However, shareholders may decide not to pay dividends and use the profits to further develop and grow the company. If they do so, they are acting as true investors. I recall the investing formula from my earlier post : give something now to get more in the future . And so it is here. Instead of deciding to spend profits on dividends now, shareholders may decide to invest profits in the business and get more dividends in the future. Earnings per share or EPS is used to understand how much net income there is per share. EPS is calculated very simply. As you can guess, all you have to do is divide the net income for the common stock by its number: - EPS ( Earnings per share = Net income for common stock / Number of common shares issued). There is an even more accurate measure that I use in my analysis, which is EPS Diluted or Diluted earnings per share : - EPS Diluted ( Diluted earnings per share = Net income for common stock / (Number of common shares issued + Issuer stock options, etc.)). What does "diluted" earnings mean, and when does it occur? For example, to incentivize management to work efficiently, company executives may be offered bonuses not in monetary terms, but in shares that the company will issue in the future. In such a case, the staff would be interested in the stock price increase and would put more effort into achieving profit growth. These additional issues are called Employee stock options (or ESO ). Because the amount of these stock bonuses is known in advance, we can calculate diluted earnings per share. To do so, we divide the profit not by the current number of common shares already issued, but by the current number plus possible additional issues. Thus, this indicator shows a more accurate earnings-per-share figure, taking into account all dilutive factors. The value of EPS or EPS Diluted is so significant for investors that if it does not meet their expectations or, on the contrary, exceeds them, the market may experience significant fluctuations in the share price. Therefore, it is always important to keep an eye on the EPS value. In TradingView the EPS indicator as well as its forecasted value can be seen by clicking on the E button next to the timeline. We will continue to discuss this topic in the next publication. See you soon!
Editors' picks
NSE:RELIANCEEducation
by Be_Capy
4
Voltas Opportunities : Positive Breakout Second Resistance ( LTP > R2) RSI indicating price strength High Volume, High Gain Strength : Company with Low Debt Strong cash generating ability from core business - Improving Cash Flow from operation for last 2 years Book Value per share Improving for last 2 years Company with Zero Promoter Pledge Weaknesses : MFs decreased their shareholding last quarter Inefficient use of capital to generate profits - RoCE declining in the last 2 years Inefficient use of shareholder funds - ROE declining in the last 2 years Inefficient use of assets to generate profits - ROA declining in the last 2 years Decline in Net Profit with falling Profit Margin (QoQ) Decline in Quarterly Net Profit with falling Profit Margin (YoY) Declining profits every quarter for the past 3 quarters Declining Net Cash Flow : Companies not able to generate net cash Major fall in TTM Net Profit Recent Results: Declining Operating Profit Margin and Net Profits (YoY)
NSE:VOLTAS
by stoxway
1
USDINRPlease keep in mind that this is only for futures and positional traders. You can buy USDINR in 3 different buy zones, as mentioned (Buy zone 1, Buy zone 2, Buy zone 3). There is NO-STOPLOSS; simply purchase as much as you can. Don't panic if it reaches Zone 3; instead, buy as much as possible. It is important to note that this view is for the next three months and is not recommended for short-term time frames.  Note 1: Do not trade CALL options based on this view because it is a long-term view and you may lose money buying OTM or ITM due to theta decay in the long run.  Note 2 : Because the USDINR is oversold, strong Bullishness is expected to continue, and only buying is recommended (avoid short selling or buying PUT options) at retracement levels.
Long
by WECLAN
The income statement: the place where profit livesToday we are going to look at the second of the three main reports that a company publishes during the earnings season, the income statement. Just like the balance sheet, it is published every quarter and year. This is how we can find out how much a company earns and how much it spends. The difference between revenues and expenses is called profit . I would like to highlight this term "profit" again, because there is a very strong correlation between the dynamics of the stock price and the profitability of the company. Let's take a look at the stock price charts of companies that are profitable and those that are unprofitable. 3 charts of unprofitable : 3 charts of profitable : As we can see, stocks of unprofitable companies have a hard enough time growing, while profitable companies, on the contrary, are getting fundamental support to grow their stocks. We know from the previous post that a company's Equity grows due to Retained Earnings. And if Equity grows, so do Assets. Recall: Assets are equal to the sum of a company's Equity and Liabilities. Thus, growing Assets, like a winch attached to a strong tree, pull our machine (= stock price) higher and higher. This is, of course, a simplified example, but it still helps to realize that a company's financial performance directly affects its value. Now let's look at how earnings are calculated in the income statement. The general principle is this: if we subtract all expenses from revenue, we get profit . Revenue is calculated quite simply - it is the sum of all goods and services sold over a period (a quarter or a year). But expenses are different, so in the income statement we will see one item called "Total revenue" and many items of expenses. These expenses are deducted from revenue gradually (top-down). That is, we don't add up all the expenses and then subtract the total expenses from the revenue - no. We deduct each expense item individually. So at each step of this subtraction, we get different kinds of profit : gross profit, operating income, pretax income, net income. So let's look at the report itself. - Total revenue This is, as we've already determined, the sum of all goods and services sold for the period. Or you could put it another way: this is all the money the company received from sales over a period of time. Let me say right off the bat that all of the numbers in this report are counted for a specific period. In the quarterly report, the period, respectively, is 1 quarter, and in the annual report, it is 1 year. Remember my comparison of the balance sheet with the photo ? When we analyze the balance sheet, we see a photo (data snapshot) on the last day of the reporting period, but not so in the income statement. There we see the accumulated amounts for a specific period (i.e. from the beginning of the reporting quarter to the end of that quarter or from the beginning of the reporting year to the end of that year). - Cost of goods sold Since materials and other components are used to make products, accountants calculate the amount of costs directly related to the production of products and place them in this item. For example, the cost of raw materials for making shoes would fall into this item, but the cost of salaries for the accountant who works for that company would not. You could say that these costs are costs that are directly related to the quantity of goods produced. - Gross profit (Gross profit = Total revenue - Cost of goods sold) If we subtract the cost of goods sold from the total revenue, we get gross profit. - Operating expenses (Operating expenses are costs that are not part of the cost of production) Operating expenses include fixed costs that have little or no relation to the amount of output. These may include rental payments, staff salaries, office support costs, advertising costs, and so on. - Operating income (Operating income = Gross profit - Operating expenses) If we subtract operating expenses from gross profit, we get operating income. Or you can calculate it this way: Operating income = Total revenue - Cost of goods sold - Operating expenses. - Non-operating income (this item includes all income and expenses that are not related to regular business operations) It is interesting, that despite its name, non-operating income and operating income can have negative values. For this to happen, it is sufficient that the corresponding expenses exceed the income. This is a clear demonstration of how businessmen revere profit and income, but avoid the word "loss" in every possible way. Apparently, a negative operating income sounds better. Below is a look at two popular components of non-operating income. - Interest expense This is the interest the company pays on loans. - Unusual income/expense This item includes unusual income minus unusual expenses. "Unusual" means not repeated in the course of regular activities. Let's say you put up a statue of the company's founder - that's an unusual expense. And if it was already there, and it was sold, that's unusual income. - Pretax income (Pretax income = Operating income + Non-operating income) If we add or subtract (depending on whether it is negative or positive) non-operating income to operating income, we get pretax income. - Income tax Income tax reduces our profit by the tax rate. - Net income (Net income = Pretax income - Income tax) Here we get to the income from which expenses are no longer deducted. That is why it is called "net". It is the bottom line of any company's performance over a period. Net income can be positive or negative. If it's positive, it's good news for investors, because it can go either to pay dividends or to further develop the company and increase profits. This concludes part one of my series of posts on the Income statement. In the next parts, we'll break down how net income is distributed to holders of different types of stock: preferred and common. See you soon!
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NSE:BANKNIFTYEducation
by Be_Capy
2
At the beginning was the EquityWith this post, I am concluding the analysis of the company's balance sheet. You can read the previous parts here: Part 1 - Balance sheet: taking the first steps Part 2 - Assets I prioritize Part 3 - A sense of debt Now we know that every company has assets on one side of the balance sheet and liabilities and equity on the other side. If you add liabilities and equity together you get the sum of assets. And vice versa, if you subtract all of the company's liabilities from the assets, you get what? That's right, you get Equity . Let's discuss this important component of the balance sheet. When a company is first established, it must have initial equity. This is the money with which any business starts. It is used for the first expenses of the new company. In the case of our workshop , the equity was the master's savings, with which he bought the garage, equipment, raw materials and other assets to start his business. As sales progressed, the workshop received the revenue and reimbursed expenses. Whatever was left over was used to boost the company's profit. So, our master invested his capital in the business to increase it through profits. Making a profit is the main purpose for which the company's assets work, loans are raised, and equity is invested. Let's see which balance sheet items are in the Equity group: - Common stock (The sum of nominal values of common stock issued). Remember, when our master decided to turn his company into a stock company , he issued 1 million shares at a price of $1,000 per share. So $1,000 per share is the par value of the stock. And the sum of the nominal values of the stocks issued would be $1 billion. - Retained earnings . It is clear from the name of this item that it contains profits that have not been distributed. We will find out where it can be allocated in the next post, when we start analyzing the income statement. - Accumulated other comprehensive income (Profit or loss on open investments). The profit or loss of a company can be not only from its core business, but also, for example, from the rise or fall in the value of other companies' shares that it bought. In our example, the workshop has oil company shares. The financial result from the revaluation of these shares is recorded in this item. So, the equity is necessary for the company to invest it in the business and make a profit. Then the retained earnings themselves become equity, which is reinvested to make even more profits. It's a continuous cycle of the company's life that bets on equity growth. Which balance sheet items are of interest to me in the Equity group? Of course, I am interested in the profit-related items: retained earnings and profit or loss on open investments. The sum of nominal share values is a static indicator, so it can hardly tell us anything. However, it is better to use information from the income statement rather than the balance sheet to analyze earnings, because only this report allows us to see the entire structure of a company's income and expenses. So we conclude the general analysis of a company's balance sheet. To fully understand why it is needed, let's engage our imagination once again. Do you remember the example with the hotel ? We imagined that a joint stock company is a hotel with identical rooms, where you, as an investor, can buy a certain number of rooms (one room = one share). Think about what you would want to look at first before buying? Personally, I'd rather see photos of the rooms. So, the balance sheet can be compared to such photos that we get from the hotel at quarterly and annual intervals. Of course, in such a case, the hotel will try to use special effects as much as possible in order to improve investors' impression of the photos released. However, if we track and compare photos over multiple periods, we can still understand: is our hotel evolving, or have we been watching the same couch in a standard room for 10 years in a row. We can say that the balance sheet is a "photo" of the company's assets, debts and equity at the balance sheet date. And the balance sheet items I've chosen are what I look at first in this photo. In the next series of posts, we will break down an equally important report, the income statement, and explore the essence of earnings. See you soon!
NSE:TATAMOTORSEducation
by Be_Capy