| ign="center"> | | | | bullish or bearish. |
| EQUITY | | | | ⢠Bull Market: A market where the prices of |
| The process of sacrificing or committing some | | | | a certain group of securities rising or expected to |
| money today in expectation of financial return later is | | | | rise. Bulls are optimistic investors who expect good |
| defined as investment. The investor indulges in a bit | | | | things to happen in the market. |
| of speculation (guess) as to how much return he is | | | | ⢠Bear Market: A market where the prices of |
| likely to get. Investor always makes speculation while | | | | a certain group of securities are falling or expected |
| taking the investment decisions. | | | | to fall. In this type of market short selling takes place. |
| Equity investments generally refers to the buying and | | | | Three widely used measures of relative value are: |
| holding of shares or stock on a stock market by | | | | ⢠Price/ Earnings Ratio: |
| individuals and firms in the expectation of getting | | | | P/E ratio for a stable firm which is growing at a rate |
| income in the form of dividends and capital gain. | | | | comparable to the normal growth rate in the |
| Dividends are declared by the firm when they earn | | | | economy in which it operates is given by, |
| profits and the capital gain is earned by selling the | | | | P/ EPS = P/E (Pay-out ratio/ r-g) |
| share when the value of the share rises. | | | | Where, P = DPS/ r-g |
| Equity also refers to the acquisition of ownership of a | | | | DPS = Expected dividends per share next yearr = |
| private (unlisted) company or a startup (a company | | | | required rate of return on equityg = Growth rate in |
| being created or newly created). When the | | | | dividends (forever) |
| investment is in infant companies, it is referred to as | | | | EPS = Expected earnings per share next year. |
| venture capital investing and is generally understood | | | | The P/E ratio is an increasing function of the pay-out |
| to be higher risk than investment in listed | | | | ratio and the growth rate and a decreasing function |
| going-concern situations. | | | | of the riskiness of the firm. If P/E ratio is less than |
| Few years ago, when the person wanted to buy or | | | | the expected growth rate, then the stock is |
| sell shares, he or she physically took the certificates | | | | undervalued and if P/E ratio is more than the |
| to the brokerage firm. But now because of | | | | expected growth rate, then the stock is overvalued. |
| technology, these documents are stored | | | | ⢠Price/ Book Value Ratio: |
| electronically. A Demat Account is opened by the | | | | The relationship between the price and the book |
| investor by registering with an investment broker. In | | | | value has often helped the investors to identify the |
| demat account shares and securities are held in | | | | undervalued and overvalued portfolios and stocks. |
| electronic form instead of shares in physical form. | | | | P = DPS / r-g |
| The Demat account number is generated for all | | | | Where, P= Value of stock |
| transactions to enable electronic settlements of | | | | DPS = Expected dividend per share next yearr = |
| trades to take place. | | | | required rate of return on equityg = Perpetual |
| To access demat account, internet password and a | | | | growth rate in dividend |
| transaction password are required. Whenever any | | | | A low P/BV ratio indicates that the firm has a price |
| purchase or sale of securities takes places then a | | | | which is below the book value. Such a firm is more |
| confirmation is sent to the client. Purchases and sales | | | | likely to go out of business. So, investors are advised |
| of securities on the Demat account are automatically | | | | to make careful decisions about investing in these |
| made once transactions are executed and completed. | | | | firms. |
| Now trading with a click of mouse or a phone call has | | | | ⢠Price/Sales Ratio: |
| made the transaction easier. The most important | | | | P/S ratio can be estimated using earnings growth |
| feature of equity investment is its limited liability. It | | | | rate, pay-out ratio and risk. |
| means as the owner of the stock is not responsible | | | | Price to Sales Ratio = Price to Earnings Ratio * (Profit |
| for the payments of the debts if the company is not | | | | Margin) |
| able to. Owing equity shares or stock means even if | | | | Price to sales ratio is useful to value any company. |
| the company goes bankrupt, the owner of the stock | | | | Price to Sales ratio for a company can be calculated |
| will never lose his or her personal assets. | | | | by dividing the market capitalization of a company by |
| The emerging equity markets have now become | | | | its total revenue for the last four quarters. Price to |
| more stable, liquid and self sufficient because of | | | | sales ratio is more reliable measure because revenue |
| larger investment flows, intensive research and more | | | | for a company is difficult to manipulate. Firms with |
| liberalized economic policy. Emerging equity markets | | | | low profit margins and high P/S ratios are overvalued |
| offer potentially attractive rates of return, in part | | | | and those with high profit margins and low P/S ratios |
| because the combination of low-cost resources and | | | | are undervalued. Investors should be able to identify |
| technology transfers often produce large profit | | | | them correctly and make investment decisions. |
| margins for firms operating in such environments. | | | | Report this article |
| Initially, when a market achieves considerable | | | | This article is free for republishing |
| economic and political stability and begins | | | | Source: |
| implementing liberalized policies, equity price rises after | | | | Republish this article |
| which the confidence of domestic investors is gained | | | | |
| and becomes well accepted as an attractive | | | | Ask a Question About this Article |
| investment avenue. Investors must make intelligent | | | | >> american racing hurricane wheels |
| judgments about the current state of the market | | | | >> Where Can I Get A Cute Rolling Duffle |
| and possible changes in the future. | | | | Luggage Thing? |
| A logical starting point in assessing the market is to | | | | >> My sister has a pond with all colors of gold |
| understand the economic factors that determine | | | | fish is their some companies that buy them. |
| stock prices. | | | | >> Is there an ABLE Printing LLC in North |
| There are two types of situation when the market is | | | | Carolina? |