Saturday, May 25, 2019

Financial Ratios: Make Investing Decisions Easy By Understanding These Numbers

Financial Ratios: Make Investing Decisions Easy By Understanding These Numbers
Let us consider we have two vehicles. You fill both vehicles with 1 liter of fuel. You have the data of how much Distance it has traveled and what Time it has took. You can divide Distance by Time to get Speed. You can divide Distance by Fuel Used to determine the Mileage. Financial Ratios are nothing but similar to Speed and Mileage, which you can determine with the help of available information. You can use the various Financial Ratios to determine the best out of a list of Stocks and also use to Rank them to find the right one for Investments. We will know how to find the Financial Numbers and how to determine the Ratios which in turn will help us for taking better decisions.

Role of Financial Ratios in Investing/Trading


The first step for a Smart Investor is knowing the Numbers of the Company he/she interested in. I've mentioned Numbers which can be extracted from a Company's public available information either from Company websites, Annual Reports or even from Newspapers (Official Circulars). Naturally I have love towards Numbers (I got distinction in all 4 mathematics papers in my Engineering course).

Any investor interested in stock analysis should be able to calculate financial ratios. The basic source of these ratios is the company’s profit & loss account and balance sheet that contain all kinds of important information about that company. The ratios really help to bring those details to light and identify the financial strengths and weaknesses of the company. When assessing ratios, it is important that the results are compared with other companies in the same industry and not to be taken in isolation. What may seem like a poor ratio at first glance may well be normal for that industry and, of course, the reverse applies, in that what may seem a good ratio on its own, could be below average for that industry.

Financial ratios indirectly tells us information about a company's Financial Strength, Management Effectiveness, Efficiency and Profitability.

It helps us to identify:

  • The Current Financial Position of the Company
  • Where the Company stands among its peers 
  • If the Stock is correctly priced by the market
  • It helps you to decide if a particular Company is eligible for investing

Financial Ratio Analysis is also called Fundamental Analysis. Many investors use fundamental analysis alone or in combination with other tools to evaluate Stocks for investment purposes. The ultimate goal is to determine the current worth of the Company and, more importantly, how the market values the Company's Stock.

The below listed Financial Ratios are the important one's and which might help identify the potential opportunities in a stock. You can click the links to read them in detail and know how to calculate them for any given stock and also how to interpret the ratios.

  1. Earnings Per Share or EPS
  2. Price To Earnings Ratio or P/E Ratio
  3. Market Capitalization
  4. Price To Sales Ratio or P/S Ratio
  5. Price To Book Ratio or P/B Ratio
  6. Dividend Payout Ratio and Retention
  7. Dividend Yield and Earnings Yield
  8. Book Value
  9. Return On Equity (ROE) and ROCE
  10. Interest Coverage Ratio
  11. Evaluating Debt: Current and Quick Ratios
  12. PEG Ratio (P/E by Projected Growth Ratio)

Hope you enjoy this series of Financial Ratios. Do let me know whether any more details are required or need clarifications about. Will consider to add them.

Saturday, June 2, 2018

How Warren Buffett Identifies Value Stocks to Invest?

How-Warren-Buffet-Identifies-Value-Stocks

Four most powerful tools that Warren Buffett uses to identify value stocks. If you understand them all then you can easily pick value stocks for wealth creation. Warren Buffett Intrinsic Value investing formula technique is shared below.

Suppose you are sitting in a beer bar with some of your friends. While drinking the beer you got idea to start your business. The business of printing T-shirts. It requires ₹1,000 to open and start that business but you have only ₹250. You convinced one of your friends sitting with you and he is agree to pay you remaining ₹750.

Now you have ₹250 as equity ( Investor’s original money invested) and ₹750 is your debt that you have to pay back. You started your business and in very first year your company has generated

Revenue = ₹200

Expenses = ₹80

Operating Profit or EBIT = ₹200- ₹80 = ₹120

Net Profit (After deduction of TAX and Interest say 20rs.)= ₹100

Now some of the important terms are as follows:

Equity or Shareholder’s equity : ₹250

Debt or Total liability : ₹750

Total Asset = Asset + Liability i.e. ₹750 + ₹250 = ₹1000

Now here we go:

ROE ( Return On Equity) : Many people don’t really understand the real meaning of ROE, they just say, divide net profit to shareholder’s equity and your ROE is ready. I am not saying they are lying but the fact is you need to understand the terms so that you can use it in your analysis part.

Now in this business

ROE = Net Profit / Shareholders Equity

ROE = 100/250 = 40%

Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. It illustrates who effective the company is at turning the cash put into the business into greater gains and growth for the company and investors. The higher the return on equity, the more efficient the company's operations are making use of those funds.

ROA ( Return On Asset):

ROA = Net Income / Total Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. Here is a twist, Remember that a company's total assets is the sum of its total liabilities and shareholder's equity. Both of these types of financing are used to fund the operations of the company. Since a company's assets are either funded by debt or equity.

The company has no retained earnings so Reserves and Surplus would be zero.

So,

ROA = 100/(250+750+Reserves and surplus)

ROA = 100/(250+750+0)

ROA = 10%

A higher ROA represents how efficiently the company is using its total asset in its core business to generate profits.

ROA is most useful for comparing companies in the same industry, as different industries use assets differently.

ROCE ( Return of Capital Employed)

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed.Here Capital Employed is not the total asset, this capital is the total capital that has been used to generate profits in the company.

ROCE is calculated as:

ROCE = EBIT / Capital Employed

EBIT = Total Revenue - Expenses i.e. 200 - 80 = ₹120

Total Capital Employed = Equity + Liabilities - Reserves & Surplus

In this example Total Capital Employed = 250 + 750 - 0 = ₹1000

ROCE = 120 / 1000 = 12%

For a company, the ROCE trend over the years is also an important indicator of performance. In general, investors tend to favor companies with stable and rising ROCE numbers over companies where ROCE is volatile and bounces around from one year to the next.

Debt to Equity Ratio :

This is very important parameter that simply determines that how much debt the company has on every 1 Rs. invested by original investors

Debt to Equity Ratio : Total Debt / Shareholder's equity

Debt to Equity Ratio : 750/250 = 3

So Debt/Equity should always be less than or equal to .5

Sunday, April 22, 2018

{NSE|BSE} Stock Market {Open|Closing} Timings In India

If you ask any trader about the Stock Market Timings in India, you could easily get the answer as 09:15 am to 03:30 pm from Monday to Friday. But there are some few more things to discuss about the stock market timings in India such as Pre Market Open Session, Trading Session as well as Post Market Closing Session if you look deep into the topic. That's what I am about to discuss in this post.

Stock Market Timings in India

Stock Market Timings in India

Trading on the Indian Equities segment takes place on all weekdays except Saturday, Sunday and on Stock Market Holidays declared by Indian Stock Exchanges in advance. You could get much more details about the holidays in link here: NSE Market Timing Holidays

Pre-Market Session

The Pre-Open Trade session is a 15 minute trade session from 09:00 am to 09:15 am on the 50 stocks of NIFTY Index. Only 50 stocks of the NIFTY Index can be traded in this session. Normal trading for all other stocks will commence from 09:15 am till 03:30 pm.

What is the Need for Pre-Market Session?

In case a major event or announcement comes overnight before market opens, such events are likely to bring heavy volatility on the next day when the market opens. Special events include merger and acquisition announcements, open offers, delistings, debt-restructurings, credit-rating downgrades etc which may have a deep impact on investors wealth. In order to stabilize this, pre open call auction is conducted to discover the right price and to reduce volatility.
This Pre-Open Session is further divided into 8+4+3 minutes sessions.

  • 09:00 AM to 09:08 AM
    • During this session investors can place/ modify /cancel orders on the basis of which the exchanges would determine the rates at which trading would happen. Orders are not accepted after this initial 8 minutes.
  • 09:08 AM to 09:12 AM
    • In this four minutes, orders are matched, executable price is discovered and trades are confirmed. This session is used to determine the Opening Price of the stock in the normal trading session. You will not be able to cancel the orders here.
  • 09:12 AM to 09:15 AM
    • This 3 minutes is just a buffer period for transmission from pre-market session to normal market session.

Normal Market Session

This is the session where most of the trading activities takes place. You can Buy and Sell stocks in this session. It follows Bilateral matching session, where if buying price is equal to selling price, transaction is said to be complete. Here transactions are as per price and time priority.

Closing Session

The time between 03:30 pm and 03:40 pm is used to calculate the closing price of the stock. It is calculated as the weighted average of the price between 03:00 pm to 03:30 pm. Index closing price is also calculated by their constituent stocks closing price between 03:00 pm to 03:30 pm. 

Intraday Trading With Gann Square of 9 Calculator (Live Case Study)

Please Enter below the LTP (after 9.30 a.m) of the NSE/BSE Nifty or any Index or Stock script for which you need to calculate Intraday Resistance and Support levels as well as Stock Targets and Stoploss recommendation based on Gann's Square of Nine method. Also see below Casestudy if you want to know how it worked for me.
Gann Online Calculator
Enter LTP: >>
Gann Square of 9

The Gann's calculated Resistance and Support levels for the provided LTP value above is as given below for Intraday only.
Gann Resistance and Support Levels
Resistance & Support Levels
Resistance 1 Resistance 2 Resistance 3 Resistance 4 Resistance 5
Support 1 Support 2 Support 3 Support 4 Support 5

You can use the below Gann's Recommended Targets and Stoploss for the stock/Index for Intraday only.
Gann Recommendation for Targets and Stoploss
Recommendation:
Buy at / above:     Targets:  
Stoploss :  
Sell at / below:     Targets:  
Stoploss :  

Sample Trading Casestudy using the above Gann Suare of Nine Method

I took BHARTIARTL on NSE as on 17th October, 2017

Also Read: NSE/BSE Opening Closing Timings in India

I checked for the LTP as on 9:35 am and found it to be 458.05 and entered the same in above Gann Square of Nine Intraday Calculator.
Gann Square of Nine Calculation LTP Selection
As soon as I entered the LTP, I got Resistance and Support levels, and as well as the Target and Stoploss Recommendation also.
Gann Square of Nine Calculation Resistance Support Target Stoploss
As for the day, Open and Low was same, I did not want to short the stock and waited for it to break the 462.25 levels, so that I can enter to buy the stock.

At around 12.55 pm, it touched the 462.5 levels, and the stock was bought with a stop loss order of 456.89.
Gann Square of Nine Calculation Buy Level Breaks
The first target was given as 467.4 as per the above Gann Square of Nine method and it was achieved at around 2:45 pm as the scrip went upto 469 levels. As the first target was achieved, the stop loss order was re modified as 467.4 and waited for next Target 472.82. But, within few minutes, it came back to 467.25 and triggered the stop loss order and the scrip was sold at  467.4 levels.
Gann Square of Nine Calculation Target1 Achieved
Totally, The trade made a profit of Rs.450+ following the Gann's square of Nine method for Intraday.
Gann Square of Nine Calculation Profits
Thus, you could see from the above case study that, The target as suggested by Gann's square of Nine method worked. But let me make you clear you with some details on how you could have lost money in this trade.

*You could have shorted at the 456.89 once it went below it. As I was sure that it will increase due to open and low are same, I did not short it.

*Once it reached the Target1, the stoploss order was re modified. If it was not done in a timely manner, you could have lost profits, since the stock came down from top within few minutes.

Also Read: Nifty Monthly Expiry and BankNifty Weekly Expiry Option Pain Cheat Sheet

Finally, I want to suggest is that, Gann Square of Nine method is a profitable method if and only if you are clear with the direction in which the stock moves and you are quick enough to trade according to the situation and handle it properly. This method is just like a torch light in a dark cave. All the risk must be borne by you before you implement or use the above method.

Saturday, November 11, 2017

What does SEO stand for? What does it mean actually?

What-does-SEO-stand-for-SEO-means

What does SEO stand for? It is one of the most searched query on google when someone created a website for himself or for his/her business and hears that they need to optimize for the search engines in order to get visitors or customers to his/her website. So what does SEO stand for in business? let me explain.

Search Engine Optimization

SEO stands for Search Engine Optimization. And the phrase improve your SEO strategy encompasses the actions taken to ensure your website can be found in a search engine's results page (SERP) when searching for words or phrases relevant to the content on your website.

Can you understand the above definition for What does SEO mean? Not getting it? Let me explain what is SEO marketing as if I am explaining to my 60 years old father who has not completed his graduation and want to start an Online Business.

Imagine you run a hotel in a busy street where there are two more hotels are present. You provide very quality food and your service is also good from start to end as a customer gets into the hotel. Now, how do you let others know, I mean, the (unknown) visitors who enter the street in which your hotel is located and drive them into your hotel? Practically, you will advertise your hotel in your surrounding area. They might not know whether you provide quality food or not, your service is up to their satisfaction or not. But, you just let them know that such a hotel is present. Moreover, If your quality and service is also good, then, your customers share to others about your hotel (words of mouth). Thereby, you will gain some authority and you get visitors coming up and also improve your business.

Now get back, come out of your imagination. The hotel, which is referred above is your business. You have very quality content or service. But how do your potential visitors know that such a website is present and provide service for the same? The answer is nothing but Optimizing your website as per the Search Engines, such as Google, Bing, Yahoo etc.

Your visitors can mainly reach your business website from Search Engine Result Pages (SERP) only. When your visitors search for a keyword, say about a food item (imagine, you are running a hotel website) on Google, then SEO is nothing but showing your website on the very first position in the search engine results, or at least on the very first page of the Google search engine results.

What are the Qualities of a Good Search Engine Optimized Website? (or) How to make your site liked by the Search Engines?

We can broadly classify the SEO as two things. On page SEO and Off page SEO. Let me discuss those things with you.
On-page-SEO-Off-Page-SEO

On Page SEO

They are the factors which a website posses and if not up to the mark of satisfaction, can be improved easily. So here you go with the On Page SEO factors which affect a website's rank on a search result page.

Checklist for Content

  • Quality Content. Your website must have a content, which should posses value to the users, who visit to your website. Without quality content, though you rank on top of Google results, within few days, you might slip from the first position and gradually move on to the next pages of the Google Results.
  • Research. Have you researched the keywords people may use to find your content?
  • Words. Do you use words and phrases you hope they will be found for?
  • Freshness. Are the pages fresh and about "hot" topics? Do you update the old posts regularly?
  • Media Content. Do the webpage posses any other media such as an image, a video, news etc, other than simple text content?

Checklist for Website Architecture

  • Crawl. Can search engines easily crawl on your web pages?
  • Duplicate. Does your website is able to manage duplicate contents?
  • Mobile. Does your site work well for mobile devices and make use of app indexing?
  • Speed. Does your website load quickly?
  • URL's. Does your URL contain meaningful keywords related to the topic?
  • HTTPS. Does your site use HTTPS to provide secure connection for your visitors?

Checklist for HTML

  • Title. Do HTML title tag contain keywords relevant to page topics?
  • Description. Do meta description tags describe what pages are about?
  • Structure. Do pages use structured data to enhance listings?
  • Headers. Do headlines and subheads use header tags with relevant keywords?
  • Stuffing. Do you excessively use words you want to be found for?
  • Hidden. Do colors or design "hide" words you want pages to be found for?

Off Page SEO

So if you are perfect with On page SEO, good! you have almost made your website a perfect one with neat and clean in the eyes of search engines. But, search engines also looks for off page factors which are listed below and discussed.

Website Trust

  • Authority. Do links, shares and other factors make site a trusted authority?
  • Engage. Do visitors spend time reading or "Bounce" away quickly?
  • History. Has site or its domain been around a long time operating in same way?
  • Identity. Does site use means to verify its identity and that of authors?
  • Piracy. Has site been flagged for hosting pirated content?
  • Ads. Is your content ad-heavy especially "above-the-fold"?

Links

  • Quality. Are links from trusted, quality or respected websites?
  • Text. Do links pointed at pages use words you hope they'll be found for?
  • Number. How many links point at your web pages?
  • Paid. Have your purchased links in hopes of better rankings?
  • Spam. Have you created links by spamming blogs, forums or other places?

Personal

  • Country. What country is someone located in?
  • Locality. What city or local area is someone located in?
  • History. Has someone regularly visited your site or socially favored it?
  • Social. Has someone or their friends socially favored the site?

Social

  • Reputation. Do those respected on social networks share your content?
  • Shares. How many share your content on social networks?
So What does SEO mean cannot be answered in a single sentence or paragraph. All the above factors work together to make a webpage rank on search engine result pages. So be sure that your webpage fulfills all the checklist mentioned above. Read my other blog posts on SEO to know more on Search Engine Optimization. Comments are welcomed. Please let me know your doubts through comments.

Friday, October 20, 2017

Money Management - Let the Money Work for You

Money Management - Make Money Work For You

I am a normal guy who works in a IT company. I get my salary on the last working day. As usual, I pay the rent, pay back the loans, spend some for myself, send some money to parents and I did not bother much about the excess money I had in the savings account every month. I just got a notification stating that Rs.308 has been credited as Interest for the savings account I had. I just asked my two roommates about this and it was shocking to know that, one got Rs.54 and another got a little more than Rs.500.  When checked, he used to spend less and had more money in his savings account which led to such higher interest.

I just started thinking thereafter, how can we make money which would provide me a decent income like the above Interest payments. I will be discussing this via the following upcoming series of blogpost.

My grandmother used to keep all the money in the locker instead of keeping it in the bank. The reason she tells is that, it is easy for her to take money and spend whenever she wanted. She was potentially missing something. Yeah, the interest which she gets every quarter.

Like my grandmother, there are more people who are not sure on what to do with money, they put in bank fixed deposits and expect a large returns, but finally pay taxes for the interest they get, or invest in share markets without knowing how it works and get lost in it, and some invest in some scam schemes and get lost with all the money.

The only reason why we hear about such scenarios is Poor Money Management by them.

We are working very hard to earn money and we don't enjoy with the money we get due to poor management of the money. Once we get to know how to manage the Money, then, with us, money will also start work to reap more money.

Next Blog Post: Why Is A Savings Bank Account Necessary?

Please comment if you/your friends had any of such poor money management before which resulted in depreciation of money. 

Sunday, August 13, 2017

How To Check Your PAN Card Status? Is It Active or Deactivated?

Hi everyone. It was shocking for me to know that around 11 lakhs PAN cards has been found duplicate and has been deactivated by the government of India. I just found a way to check if a given PAN card is active or Inactive and confirmed mine. My PAN card is Active. Follow the below steps to confirm your PAN numbers. Also don't forget to help/verify your parents and friends PAN too.

Steps to Check your PAN Card Status

  • Visit Know Your PAN page of Income Tax E-filing website: Click Here
How to check PAN card status steps
  • Fill all the details you know of which Surname, Status, Date of Birth and Mobile Number (Registered with PAN) are compulsory fields to be filled.
  • Once you click submit, OTP will be sent to your PAN registered mobile number. Check your mobile for OTP and enter the same and proceed further by clicking Validate.
How to check PAN card status steps
  • A resultant page will be showing the details of your PAN Number, Surname, First Name, Jurisdiction and Remarks of which you can find your status as mentioned in the Remarks as either Active or Deactivated.
How to check PAN card status steps

Hope your PAN card is Active. Don't forget to help others by sharing this post with your friends. Keep following for more useful posts.