Common terms used in equity investing

“Common sense is not so common.” - Voltaire

INVESTING

Lillaney

4/20/20232 min read

Before we dive into equity investments, we have to understand some commonly used terms.

What is NIFTY 50?

Nifty 50 is the index which represents an average of the top 50 stocks in India. It is a broad way to see how the Indian economy is performing and expected to perform in the future.


What is BANK NIFTY?

Bank Nifty is the index which represents an average of the top banking stocks in India. It is a broad way to see how the Indian banking sector/industry is performing and expected to perform in the future.

What is a BULL / BEAR market?

When the prices are going up the market is called a BULL market.


When the prices are going down the market is called a BEAR market.

What is DEBT/EQUITY/SHARE/EPS/CMP/PE?

When a business is started money is raised as follows:

  1. Taking a loan/debt

  2. Selling a stake in the business known as equity/share.

  3. Combination of the above.

These items are reflected on the balance sheet of a company under the Liabilities section. These funds are then used to buy Assets like Land, Machinery,etc to start the business. The funds are also used to hire people who start making products or providing services.

If the business does well the company makes profits, if it does not the company makes losses which are reflected in the Profit and Loss statement. It is also known as an Income Statement.

If the earnings are divided among the shareholders we get a figure called EPS or earnings per share. For example, if a company earns 27Cr and there are 27 shareholders each will get 1Cr which is known as the EPS.

But knowing just the EPS is not enough. What is important is also the trend of the earnings. Are they growing year on year? Or are they contracting? Do they remain constant or fluctuate in cycles?

Another important term is the current market price(CMP). This is the last price at which the share of a company last traded at on the stock exchanges.

P/E Ratio is the most widely used term which is nothing but the current market price divided by the EPS of the company. It denotes the no. of years it will take to recover your investment.

Will cover other terms as we go along. Lets cover the different ways to analyse a company next.


Stay tuned! Let us know your feedback in the comments below.

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