Lesson-3 on Finance

Question: What is Dividends Yield ?

Answer:

The Dividend yield ratio measures the rate of return that would be earned by an investor who buys the common stock at the current market price. It is calculated as follows:

                            

Dividend yield =  Dividends Per share/Market Price Per Share

                              

 Question: What is Net Asset Value (NAV)?

Answer:

The value of a single mutual fund or share, based on the value of the underlying assets of the share minus its liabilities, divided by the number of shares outstanding.

Question: What is Book Value of assets?

Answer:

Book Value of Assets =  Cost of assets –Accumulated Depreciation of Assets

The value of an asset as it appears on a balance sheet, equal to cost minus accumulated depreciation.

Question: What is Book Value per Share ?

Answer:

The Book value per shares measure the amount that would be distributed to holder of each share of common stock if all assets were sold and all creditors were paid off at their balance sheet. It is calculated as follows:

                                      

Book Value Per Share = (Total Stockholders equity- Preferred Stock)/Number of Common Shares Outstanding

                                       

Question: What is Return on Assets (ROA) Ratio?

Answer:

This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. The Return on Assets Ratio is calculated as follows:

                                 
Return on Assets = Net Profit before Tax/Total Assets

A low ratio in comparison with industry averages indicates an inefficient use of business assets. 

Question: What is Return on Investment (ROI) Ratio?

Answer:

It is the percentage of return on funds invested in the business by its owners. The ROI is calculated as follows:

                                       
Return on Investment = Net Profit before Tax/Net Worth

Question: What is Leverage Ratio?

Answer:

This Debt/Equity or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity):
                                      
Debt/Equity Ratio =  Total Liabilities/ Equity
                                          
Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit.

Question: What is Interest?

Answer:

Interest is the Cost paid by the Borrower to the lender for the use of money that they borrow from a lender. It is the price of the loan, expressed as percentage

Question: What is Effective Rate of Return(ERR)?

Answer:

                                        
Effective Rate of Return =  ( Interest Income + Non Interest Income)/ Average Utilization of Fund
                                               

Question: What Does Yield To Maturity - YTM Mean?

Answer:

The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity.

 

Question: What is Working Capital ?

Answer:

Working Capital  is the part of the capital which is required to complete the whole operating cycle.

Working Capital  = Current Assets- Current liabilities

Question: What is Authorized Capital?

Answer:

The amount of equity capital, measured at par value, that a company is allowed to raise by issuing shares, as set out in its memorandum of association. A company does not necessarily issue shares to the limit of its authorized capital

Question: What is Issued capital ?

Answer:

The proportion of authorized capital which has been issued to shareholders in the form of shares.

 

Question: What is Paid up Capital ?

Answer:

The total amount of shareholder capital that has been paid in full by shareholders. The proportion of a company's issued capital that has been paid for by its shareholders.

Question: What is Equity?

Answer:

Ø Ownership interest in a corporation in the form of common stock or preferred stock.

Ø Part of company’s capital being paid by the shareholders.

Ø Total assets minus total liabilities; here also called shareholder's equity or net worth or book value.

Question: What Does Face Value Mean?

Answer:

The value of a share certificate or Stocks or other securities as shown on the front or face of the document.

Question: What is Share?

Answer:

Part of the ownership of a company. A person who buys a portion of a company's capital becomes a shareholder in that company's assets and as such receives a share of the company's profits in the form of an annual dividend.

Question: What is Stock?

Answer:

Stock is the capital raised by a corporation through the issuance and distribution of shares

Question: What is Dividend?

Answer:

The amount  paid out from  company's profits to its shareholders, usually yearly (final dividend) and sometimes half-yearly (interim dividend).

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