Glossary

Book Value Per Share (BVPS)

Book Value Per Share (BVPS) is the amount of equity available if the company were to liquidate all its assets and settle all its liabilities on a per-share basis.

Cost of Capital

The cost of capital is the minimum rate of return a company must earn on its investments to satisfy its investors and lenders.

Discounted Cash Flow (DCF)

Discounted Cash Flow (DCF) is a valuation method used to estimate the value of a business based on its expected future cash flows, which are adjusted (or "discounted") to their present value using a discount rate.

Dividend Yield

Dividend yield shows how much money is given to shareholders in dividends compared to the stock price. For investors seeking steady cash flow, like retirees, dividend yield is a key factor in choosing stocks.

EV/EBITDA Ratio

The EV/EBITDA ratio calculates the overall value of a company compared to its earnings before interest, taxes, depreciation, and amortisation. It is also known as the enterprise multiple.

Enterprise Value

Enterprise value measures the total value of the company. It gives a comprehensive idea of the company by taking into account all factors like market capitalisation, short-term and long-term debt, and any cash or cash equivalents on the company’s balance sheet.

Extrinsic Value

Extrinsic value is the portion of the option price that exceeds its intrinsic value and is attributed to external factors like time and volatility. Extrinsic value affects the cost of the option.

Intrinsic Value in Options

Intrinsic value is the real value based on the current market price of the underlying asset. Intrinsic value represents the minimum price an option should be worth, and it is always non-negative.

Intrinsic Value in Shares

Intrinsic value refers to the true, fair value of an asset or company, based on its actual business performance, not what the stock market currently says it's worth.

Market Capitalisation

Market capitalisation, or market cap, is a simple yet powerful measure of a company’s total value in the stock market. It is calculated by multiplying a company’s outstanding shares by its current share price. In mergers and acquisitions, market cap plays a key role in assessing whether a target company offers fair value to the acquirer.

Price Earnings to Growth (PEG) Ratio

The Price/Earnings to Growth ratio measures a stock's performance by comparing its price-to-earnings (P/E) ratio with its expected earnings growth rate over a specific period. It addresses the limitations of the P/E ratio by incorporating the company's growth potential, providing a more comprehensive view of the stock's valuation.

Price-to-Book (P/B) Ratio

Price-to-Book Value (or PB ratio) compares a company’s market price to its book value per share, indicating how much investors are willing to pay for each rupee of net assets and helping identify potentially undervalued or overvalued stocks.

Price-to-Earnings (P/E) Ratio

The Price-to-Earnings ratio (or PE ratio) is a financial valuation metric that compares a company’s current share price with its Earnings Per Share (EPS) to determine whether a stock is overvalued, undervalued, or fairly priced.

Valuation Ratios

Valuation ratios are financial metrics used to measure a company’s market value by comparing its stock price with earnings, book value, revenue, or cash flow.

Weighted Average Cost of Capital (WACC)

WACC, which stands for Weighted Average Cost of Capital, is a financial metric used to measure a company's financing cost from all sources, such as debt, equity, and other capital. It represents the average rate of return that a company must earn for both debt holders and equity holders to finance its assets.

Yield to Maturity (YTM)

Yield to Maturity (YTM) is the total return an investor can earn by holding a bond until it matures, assuming all interest payments are reinvested at the same rate. It helps compare different bonds and evaluate investment profitability.