Enterprise value

http://www.arborinvestmentplanner.com/enterprise-value-ev-calculating-enterprise-
value-ratios/
ROE EXPLANATION:
http://equityfriend.com/articles/117-how-to-analyse-roe-of-a-company.html
OPERATING PROFIT:
http://equityfriend.com/articles/116-how-to-analyse-operating-profit-of-a-
company.html
WHY BLOCK DEAL OCCUR IN ANY STOCK

Block deal is a single transaction, of a minimum quantity of five lakh shares or a minimum value of
Rs 5 crore, between two parties.

Definition: It is a single transaction, of a minimum quantity of five lakh shares or a minimum value of
Rs 5 crore, between two parties which are mostly institutional players. The transaction happens
through a separate trading window. The deals happen in the beginning of trading hours for a time
span of 35 minutes.

Description: Block deal order consists of the following attributes:

1. An order may be placed for a minimum quantity of 5 lakh equity shares or minimum value of Rs 5
crore.
2. Every trade has to result in delivery and "Block Deal" orders cannot be squared off or reversed.
3. The price of a share ordered at the window should range within +1% to -1% of the current market
price/previous day's closing price, as applicable.
4. Transparent disclosure of trade transaction details such as the name of scrip, name of the clients
(Buyer and Seller), quantity of shares bought/sold, and traded price have to be made by the broker
to the exchange immediately. The exchange has to furnish all the transaction-related information to
the public markets on the same day of the block deal transaction, after the closing of trading hours.

For example, two FIIs (foreign institutional investors) want to trade 10% of a company's total
number of shares. As this transaction involves trading of a large quantity of shares, the risk factors
entailing to this transaction are immense. Thereby, the exchange on which trading will happen,
allocates a separate trading window for these two investors to exhibit a block deal, with the prime
focus of prohibiting risk

How is it different from bulk deals?

A block deal happen through a separate window provided by the stock exchange. This window is open for
only 35 minutes but bulk deals take place throughout the trading day. There is always a need for two
parties for a block deal to take place, however, bulk deals are market driven.
If more than 0.5% of the number of equity shares of a company gets traded in a single or multiple
transactions under a single client code, it is called as bulk deal. The broker, who facilitates the trade, is
required to reveal to the stock exchange about the bulk deals on a daily basis though data upload
software (DUS).

Cash flow and Funds Flow:-

End Result Funds flow statement shows the causes Cash flow statement shows the causes the
of changes in net working capital. changes in cash.

Bulls, Bears and Stags

Hi there,
Lets catch up with Bulls and bears. The two most commonly used terms in stock markets.
A common story is that the terms Bull market and Bear market are derived from the way
those animals attack. Bulls are supposed to be aggressive and attacking while bears would
wait for the prey to come down.
Another story is that long back, bear trappers would first trade in the market and fix a price
for bear skins, which they actually dint own. Once the price is fixed , they would go hunting
for bear skins. So eventually even if the prices go down, they will still be able to sell if for a
high price. This term eventually was used to describe short sellers and speculators who sell
what they do not own and buy it when the price comes down and makes money in the
process.
However, it was Thomas Mortimer,in his book called Every Man His Own Broker (1775)
who first officially used the terms Bulls and bears to describe investors according to their
behavior.
BULL MARKETS
When can you say its a bull market? When the prices of stocks moves up rapidly cracking
previous highs , you may assume that its a bull market.If there are many bullish days in a
row you can consider that as a bull market run. Technically a bull market is a rise in value
of the market by at least 20%.
BEAR MARKETS
 A bear market is the opposite of a bull market. When the prices of stocks moves crashes
rapidly cracking previous lows , you may assume that its a bear market. Generally markets
must fall by more than 20% to confirm that it a bear market.
STAGS
This is another category of market participant. The stags are not interested in a bull run or a
bear run. Their aim is to buy and sell the shares in very short intervals and make a profit
from the fluctuation. Its a daily tussle for stags in the stock market.
MARKET TIMING
The basic idea behind stock market investment is simple- Buy low, sell high and make
money. So to make money, you buy stocks in a bear market when stock prices are low and
sell stocks in a bull market when stock prices are high.
However, knowing the exact time when a bear market would start or when a bull market run
would come is not possible. Just when you thought the markets would go up, it may
surprise you by trading low. Your strategy should be to pick up shares in the bear market
and sell it when theres a bull market run.
HERES THE CRUX..
Technically a bull market is a rise in value of the market by at least 20%.Anything
less than 20% would be considered as a minor rally.
A market launches into a bull phase when sentiment turns buoyant, which is usually
because of a series of positive developments that beat expectations
Reverse is also true. A 20% or more fall in value is considered as a bear market.
Anything less than 20% would be considered as a correction.
Bear markets occur when news flow tends to be worse than expectations, causing
investors to sharply punish stocks or sectors. This has happened in the US where more bad
news on the sub-prime front and US economy data has stifled even the briefest of market
recoveries.
To confirm a bear market, this weakness should persist for at least two months. In
bear markets, liquidity is extremely tight, volumes tend to be low and market breadth tends
to be poor
Some experts believe that for emerging markets such as India, which tend to be
more volatile, the correction needs to be steeper at 30-35 per cent.
In every bear market, there tends to be bear market rallies or a bear market pullback,
where the market rises 10-15 per cent only to decline yet again. The bounce-back usually
occurs when some stocks or sectors are oversold, to borrow a term used by technical
analysts.
Worst bear market conditions are followed by great bounce backs.
That covers Bulls, bears and stags.
There is an old saying which would further give authenticity to our bear story-
Never sell a bear skin unless you have one.
Have a nice day!

Different Types and Kinds of Mutual Funds

The mutual fund industry of India is continuously evolving. Along the way, several industry
bodies are also investing towards investor education. Yet, according to a report by Boston
Analytics, less than 10% of our households consider mutual funds as an investment avenue.
It is still considered as a high-risk option.
In fact, a basic inquiry about the types of mutual funds reveals that these are perhaps one of
the most flexible, comprehensive and hassle free modes of investments that can
accommodate various types of investor needs.
Various types of mutual funds categories are designed to allow investors to choose a
scheme based on the risk they are willing to take, the investable amount, their goals, the
investment term, etc.
Let us have a look at some important mutual fund schemes under the following
three categories based on maturity period of investment:

I. Open-Ended - This scheme allows investors to buy or sell units at any point in time. This
does not have a fixed maturity date.

1. Debt/ Income - In a debt/income scheme, a major part of the investable fund are
channelized towards debentures, government securities, and other debt instruments.
Although capital appreciation is low (compared to the equity mutual funds), this is a
relatively low risk-low return investment avenue which is ideal for investors seeing a steady
income.

2. Money Market/ Liquid - This is ideal for investors looking to utilize their surplus funds in
short term instruments while awaiting better options. These schemes invest in short-term
debt instruments and seek to provide reasonable returns for the investors.

3. Equity/ Growth - Equities are a popular mutual fund category amongst retail investors.
Although it could be a high-risk investment in the short term, investors can expect capital
appreciation in the long run. If you are at your prime earning stage and looking for long-term
benefits, growth schemes could be an ideal investment.

3.i. Index Scheme - Index schemes is a widely popular concept in the west. These follow a
passive investment strategy where your investments replicate the movements of benchmark
indices like Nifty, Sensex, etc.

3.ii. Sectoral Scheme - Sectoral funds are invested in a specific sector like infrastructure,
IT, pharmaceuticals, etc. or segments of the capital market like large caps, mid caps, etc.
This scheme provides a relatively high risk-high return opportunity within the equity space.

3.iii. Tax Saving - As the name suggests, this scheme offers tax benefits to its investors.
The funds are invested in equities thereby offering long-term growth opportunities. Tax
saving mutual funds (called Equity Linked Savings Schemes) has a 3-year lock-in period.

4. Balanced - This scheme allows investors to enjoy growth and income at regular intervals.
Funds are invested in both equities and fixed income securities; the proportion is pre-
determined and disclosed in the scheme related offer document. These are ideal for the
cautiously aggressive investors.

II. Closed-Ended - In India, this type of scheme has a stipulated maturity period and
investors can invest only during the initial launch period known as the NFO (New Fund Offer)
period.

1. Capital Protection - The primary objective of this scheme is to safeguard the principal
amount while trying to deliver reasonable returns. These invest in high-quality fixed income
securities with marginal exposure to equities and mature along with the maturity period of
the scheme.

2. Fixed Maturity Plans (FMPs) - FMPs, as the name suggests, are mutual fund schemes
with a defined maturity period. These schemes normally comprise of debt instruments which
mature in line with the maturity of the scheme, thereby earning through the interest
component (also called coupons) of the securities in the portfolio. FMPs are normally
passively managed, i.e. there is no active trading of debt instruments in the portfolio. The
expenses which are charged to the scheme, are hence, generally lower than actively
managed schemes.

III. Interval - Operating as a combination of open and closed ended schemes, it allows
investors to trade units at pre-defined intervals.
Based on the maturity period

Open-ended Fund
An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is
available for subscription throughout the year and investors can buy and sell units at NAV related prices. These
funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity.

Close-ended Fund
A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds are open for
subscription for a specified period at the time of initial launch. These funds are listed on a recognized stock
exchange.

Interval Funds
Interval funds combine the features of open-ended and close-ended funds. These funds may trade on stock
exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.

Based on investment objectives

Equity/Growth Funds
Equity/Growth funds invest a major part of its corpus in stocks and the investment objective of these funds is long-
term capital growth. When you buy shares of an equity mutual fund, you effectively become a part owner of each of
the securities in your funds portfolio. Equity funds invest minimum 65% of its corpus in equity and equity related
securities. These funds may invest in a wide range of industries or focus on one or more industry sectors. These
types of funds are suitable for investors with a long-term outlook and higher risk appetite.

Debt/Income Funds
Debt/ Income funds generally invest in securities such as bonds, corporate debentures, government securities
(gilts) and money market instruments. These funds invest minimum 65% of its corpus in fixed income securities. By
investing in debt instruments, these funds provide low risk and stable income to investors with preservation of
capital. These funds tend to be less volatile than equity funds and produce regular income. These funds are suitable
for investors whose main objective is safety of capital with moderate growth.

Balanced Funds
Balanced funds invest in both equities and fixed income instruments in line with the pre-determined investment
objective of the scheme. These funds provide both stability of returns and capital appreciation to investors. These
funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination
of income and moderate growth. They generally have an investment pattern of investing around 60% in Equity and
40% in Debt instruments.
Money Market/ Liquid Funds
Money market/ Liquid funds invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit
and Commercial Paper for a period of less than 91 days. The aim of Money Market /Liquid Funds is to provide easy
liquidity, preservation of capital and moderate income. These funds are ideal for corporate and individual investors
looking for moderate returns on their surplus funds.

Gilt Funds
Gilt funds invest exclusively in government securities. Although these funds carry no credit risk, they are associated
with interest rate risk. These funds are safer as they invest in government securities.

Some of the common types of mutual funds and what they typically invest in:

Type of Fund Typical Investment

Equity or Growth Fund Equities like stocks

Fixed Income Fund Fixed income securities like government and corporate bonds

Money Market Fund Short-term fixed income securities like treasury bills

Balanced Fund A mix of equities and fixed income securities

Sector-specific Fund Sectors like IT, Pharma, Auto etc.

Index Fund Equities or Fixed income securities chosen to replicate a specific Index for
example S&P CNX Nifty

Fund of funds Other mutual funds

Other Schemes

Tax-Saving (Equity linked Savings Schemes) Funds

Tax-saving schemes offer tax rebates to investors under specific provisions of the Income Tax Act, 1961. These are
growth-oriented schemes and invest primarily in equities. Like an equity scheme, they largely suit investors having
a higher risk appetite and aim to generate capital appreciation over medium to long term.

Index Funds
Index schemes replicate the performance of a particular index such as the BSE Sensex or the S&P CNX Nifty. The
portfolio of these schemes consist of only those stocks that represent the index and the weightage assigned to each
stock is aligned to the stocks weightage in the index. Hence, the returns from these funds are more or less similar
to those generated by the Index.
Sector-specific Funds
Sector-specific funds invest in the securities of only those sectors or industries as specified in the Scheme
Information Document. The returns in these funds are dependent on the performance of the respective
sector/industries for example FMCG, Pharma, IT, etc. The funds enable investors to diversify holdings among many
companies within an industry. Sector funds are riskier as their performance is dependent on particular sectors
although this also results in higher returns generated by these funds.

Difference between a Futures

Contract and a Forward Contract
Futures and forwards are financial contracts which are very similar in nature but there exist
a few important differences:

Futures contracts are highly standardized whereas the terms of each forward
contract can be privately negotiated.

Futures are traded on an exchange whereas forwards are traded over-the-counter.

Counterparty risk
In any agreement between two parties, there is always a risk that one side will renege on
the terms of the agreement. Participants may be unwilling or unable to follow through the
transaction at the time of settlement. This risk is known as counterparty risk.
In a futures contract, the exchange clearing house itself acts as the counterparty to both
parties in the contract. To further reduce credit risk, all futures positions are marked-to-
market daily, with margins required to be posted and maintained by all participants at all
times. All this measures ensures virtually zero counterparty risk in a futures trade.

Forward contracts, on the other hand, do not have such mechanisms in place. Since
forwards are only settled at the time of delivery, the profit or loss on a forward contract is
only realized at the time of settlement, so the credit exposure can keep increasing. Hence, a
loss resulting from a default is much greater for participants in a forward contract.

Secondary Market
The highly standardized nature of futures contracts makes it possible for them to be traded
in a secondary market.

The existence of an active secondary market means that if at anytime a participant in a

futures contract wishes to transfer his obligation to another party, he can do so by selling it
to another willing party in the futures market.

In contrast, there is essentially no secondary market for forward contracts.

Price discovery is frequently confused with price determination. These are two related but different concepts which
need to be understood when discussing prices and pricing issues. Fact that distinguishes between both concepts,
identifies how they are interrelated, and provides an indication when price discovery concerns may increase.
Price determination is the interaction of the broad forces of supply and demand which determine the market price
level. It is the interaction of a supply curve and a demand curve to determine the general price level.
Price discovery is the process of buyers and sellers arriving at a transaction price for a given quality and quantity of a
product at a given time and place. Price discovery involves several interrelated concepts, among them: Market
structure (number, size, location, and competitiveness of buyers and sellers); Market behavior (buyer procurement
and pricing methods); Market information and price reporting (amount, timeliness, and reliability of information); and
Futures markets and risk management alternatives. Price discovery begins with the market price level. Because
buyers and sellers discover prices on the basis of uncertain expectations, transaction prices fluctuate around that
market price level. Because of information uncertainty, we never know exactly the shape and location of the demand
and supply curves. Therefore, we must estimate demand and supply. Those estimated supply and demand curves
intersect at a range of quantities and prices.
Thus, discovered prices fluctuate above and below the general or market price level. This fluctuation is attributable to
the quantity and quality of the commodity brought to market, the time and place of the transaction, and the number of
potential buyers and sellers present. Other factors are the amount and type of public market information available,
captive supplies, and packer concentration.

Price Discovery Interactions with Price Determination

Price determination and price discovery are interrelated. Price determination finds the market price level, and the
general level of prices may be high or low. However, when market prices are low or are falling, questions and
concerns about price discovery increase. When demand is strong or expanding and when supplies relative to
processing capacity are small or declining, price discovery problems are generally not a major concern. Under these
conditions, competition is generally keen, thus ensuring efficient price discovery.
Market Structure and Prices
Price represents the equilibrium point where buyers (demand) and sellers (supply) meet in the marketplace. New
market information (e.g., lower production of crop, natural disaster or supply concern situation, a major revision to a
previous crop production estimate, etc.) can alter the expectations of market participants and lead to a new
equilibrium price as sellers revise their offer prices and buyers revise their purchase bids based on the new
information.
The speed and efficiency with which the various price adjustments occur depend, in large part, on the market
structure within which a commodity is being traded. Common attributes of market structure include the following.
The number of buyers and sellers more market participants are generally associated with increased price
competitiveness.
The commoditys homogeneity in terms of type, variety, and quality, and end-use characteristics greater
product differentiation is generally associated with greater price differences among products and markets.
The number of close substitutes more close substitutes means buyers have greater choice and are more
prices sensitive.
The commoditys storability greater storability gives the seller more options in terms of when and under
what conditions to sell his products.
The transparency of price formation, e.g., open auction versus private contracts greater transparency
prevents price manipulation.
The ease of commodity transfer between buyers and sellers and among markets greater mobility limits
spatial price differences.
Artificial restrictions on the market processes, e.g., government policies or market collusion from a major
participant more artificial restrictions tend to prevent the price from reaching its natural equilibrium level. Some
restrictions (e.g., import barriers) limit supply and keep prices high, while other types of restrictions (e.g., market
collusion by a few large buyers) may suppress market prices.
Key Role of Market Information
Commodity prices reflect the equilibrium between supply and demand at a particular location for a given moment in
time. However, the market equilibrium and its associated price level are constantly changing as new information is
received by market participants.
The Price Basis:
A key price relationship between the local cash price and the price for the nearby futures contract is called the basis.
The basis is defined as the difference between the cash price of a particular commodity at a specific location and the
nearby futures contract (closest contract month) for that commodity.
Under normal supply and demand conditions, the basis for a storable commodity is negative reflecting the
transportation cost associated with moving the commodity from the local market to the delivery point specified by the
futures contract, and the carrying charges (storage, interest and insurance costs) associated with holding the
commodity during the time period separating the futures contract transaction date and the delivery (or contract expiry)
date. As a futures contract expires and the delivery month approaches, the carrying charges go to zero and the cash
and futures prices tend to converge. At the date of actual delivery, the basis represents the pure transportation cost
separating the local market from the futures market delivery point.
In cases where local demand exceeds local supply, whether due to a crop shortfall or a nearby processing plant, the
basis may be less than the transport margin or even exceed the futures market price.
Full carrying charges are rarely ever achieved in actual market behavior, except in periods of substantial oversupply
or excess stocks. However, the generally repetitive patterns of the basis movements for storable agricultural
commodities make the basis more predictable from year to year than the movement of either cash or futures prices.
As a result, the basis enables producers and users to estimate an expected cash price from the currently reported
value of a futures contract. This predictability greatly reduces the risk of using the futures market to hedge or forward
contract.
Factors affecting the Basis:
The overall supply and demand for each commodity by variety or type;
The supply and demand of other commodities that compete for either the same land in production or the
same dollar of consumer expenditure;
Geographical disparities in supply and demand;
Transportation and transportation problems;
Transportation pricing structure;
Available storage space;
Quality factors;
Market expectations