WHERE TO INVEST?

WHERE TO INVEST? STOCKS.... AND HOW IT WORKS? FOR THE BIGINERS Stock is an instrument that signifies an ownership position (calledequity) in a corporation, and represents a claim on its proportionalshare in the corporation's assets and profits. ownership in thecompany is determined by the number of shares a person owns divided bythe total number of shares outstanding. for example, if a company has1000 shares of stock outstanding and a person owns 50 of them, then Weowns 5% of the company. also called equity or equity securities orcorporate stock. Share = Certificate representing one unit of ownership in acorporation, mutual fund, or limited partnership.Stock market = General term for the organized trading of stocksthrough exchanges and over-the-counter. Trading = Buying and selling securities or commodities on a short-term basis, hoping to make quick profits. Investing = In finance, the purchase of a financial product or otheritem of value with an expectation of favorable future returns. Ingeneral terms, investment means the use money in the hope of makingmore money. Company Income =Revenues minus cost of sales, operating expenses, andtaxes, over a given period of time. Earnings are the reasoncorporations exist, and are often the single most importantdeterminant of a stock's price. Earnings are important to investorsbecause they give an indication of the company's expected futuredividends and its potential for growth and capital appreciation. Thatdoes not necessarily mean that low or negative earnings alwaysindicate a bad stock; for example, many young companies reportnegative earnings as they attempt to grow quickly enough to capture anew market, at which point they'll be even more profitable than theyotherwise might have been. also called income. Or revenue= For a company, this is the total amount of money receivedby the company for goods sold or services provided during a certaintime period. It also includes all net sales, exchange of assets;interest and any other increase in owner's equity and is calculatedbefore any expenses are subtracted. Net income can be calculated bysubtracting expenses from revenue. In terms of reporting revenue in acompany's financial statements, different companies consider revenueto be received, or "recognized", different ways. For example, revenuecould be recognized when a deal is signed, when the money is received,when the services are provided, or at other times. There are rule sspecifying when revenue should be recognized in different situationsfor companies using different accounting methods, such as cash basisand accrual basis.Intrinsic valueThe actual value of a security, as opposed to its market price or bookvalue. The intrinsic value includes other variables such as brandname, trademarks, and copyrights that are often difficult to calculateand sometimes not accurately reflected in the market price. One way tolook at it is that the market capitalization is the price (i.e. whatinvestors are willing to pay for the company) and intrinsic value isthe value (i.e. what the company is really worth). Different investorsuse different techniques to calculate intrinsic value. Speculation and price... PE & EPS Earnings per Share. Total earnings divided by the number of sharesoutstanding. Companies often use a weighted average of sharesoutstanding over the reporting term. EPS can be calculated for theprevious year ("trailing EPS"), for the current year ("current EPS"),or for the coming year ("forward EPS"). Note that last year's EPSwould be actual, while current year and forward year EPS would beestimates.price/earnings ratio. The most common measure of how expensive a stockis. The P/E ratio is equal to a stock's market capitalization dividedby its after-tax earnings over a 12-month period, usually the trailingperiod but occasionally the current or forward period. The value isthe same whether the calculation is done for the whole company or on aper-share basis. For example, the P/E ratio of company A with a shareprice of $10 and earnings per share of $2 is 5. The higher the P/Eratio, the more the market is willing to pay for each dollar of annualearnings. Companies with high P/E ratios are more likely to beconsidered "risky" investments than those with low P/E ratios, since ahigh P/E ratio signifies high expectations. Comparing P/E ratios ismost valuable for companies within the same industry. The last year'sprice/earnings ratio (P/E ratio) would be actual, while current yearand forward year price/earnings ratio (P/E ratio) would be estimates,but in each case, the "P" in the equation is the current price.Companies that are not currently profitable (that is, ones which havenegative earnings) don't have a P/E ratio at all. also called earningsmultiplewhere as speculation is Taking large risks, especially with respect totrying to predict the future; gambling, in the hopes of making quick,large gains. CMP = The current market price is a speculated rate.The highest amount any buyer is currently willing to pay for a share.This amount might be at a premium (above face value) or a discount(below face value). SO ONE MUST FIND A STOCK AT CHEAP PRICE FOR INVESTING FOR GOOD RETURNS. PADIYARA CONT.... HOW TO INVEST?