Capital, be it debt or equity, comes at a cost. It is, therefore, important to know if a company is generating enough returns to cover that cost. If the returns are higher than the cost, the company is adding value, else value is being lost. We use profitability ratios, such as return on assets, return...

Many stock market investors often wonder which is the best time to sell their stocks. Be it profits or loss, there are some situations when an investor takes the decision to sell. Many rely on instinct or impulse alone. However, consider these points to take a more prudent decision that wouldn’t...

Commonly used ratios As there are different measures of profit (such as gross profit, operating profit and net profit), we can calculate one profitability ratio corresponding to each measure of profit. These ratios are gross profit margin (GPM), operating profit margin (OPM) and net profit margin (NPM). Other...

Generally, companies buy back their shares when they perceive their own shares to be undervalued or when they have surplus cash for which there is no ready capital investment need. For example, Essar Oil, Reliance, Siemens and Infosys are some examples of companies that have bought back their shares....

Most stock market investors don’t have a clear understanding of what bonus issue means to them and what happens when spocks split. Here is an attempt to clarify the difference between bonus shares and stock splits and what they mean to ordinary investors. Bonus Issue In a bonus issue, a company...

As we discussed earlier, a futures contract is an agreement to buy or sell an asset on a specific future date. Futures are exchange traded, highly regulated, and usually liquid. They offer individuals an easy way to invest in currencies, commodities, stock indices, and individual stocks. Now let try...

The Board of Directors is a group of people elected by the stockholders (the owners) to represent their interest. The primary responsibility of the board of directors is to protect the shareholders’ assets and ensure they receive a decent return on their investment. The board is responsible for...

Dividend is a portion of the profits that a company pays to its share holders. Companies that earn a profit can do one of three things: pay that profit out to shareholders, reinvest it in the business through expansion, debt reduction or share repurchases, or both. When a portion of the profit is paid...