Investing from basics to advanced by Asset Yogi and blogs

OTC market-

securities that are not traded on public exchanges are traded on OTC(over-the-counter) market.

Over-the-counter (OTC) securities are traded directly between counterparties without being listed on an exchange.

Those who own stocks in a public company may be referred to as stockholders, stakeholders, and shareholders, and in reality, all three terms are correct.

The key difference between stocks and shares

"stocks" is the more general, generic term. It is often used to describe a slice of ownership of one or more companies. In contrast, in common parlance, "shares" has a more specific meaning: It often refers to the ownership of a particular company.

So if someone says she "owns shares," some people would incline to respond, "shares in what company?" Similarly, an investor might tell his broker to buy him 100 shares of XYZ Inc. If he said '"buy 100 stocks, "he'd be referring to a whole panoply of companies-100 different ones. in fact.

Book Value vs Market value-

The book value of a stock is theoretically the amount of money that would be paid to shareholders or stakeholders if the company was liquidated and paid off all of its liabilities. As a result, the book value equals the difference between a company's total assets and total liabilities.

Book value is also recorded as shareholders' equity.

Book value=tangible assets-liabilities/no. of outstanding shares

book value=equity capital+reserves/no. of outstanding shares

Assets totaled $3.17 trillion.
Liabilities totaled $2.90 trillion.
The book value was $270 billion as of the end of 2021.
Book value= share holders equity

In theory, if Bank of America liquidated all of its assets and paid down its liabilities, the bank would have roughly $270 billion left over to pay shareholders.

For example, as of March 8, 2022, Bank of America had over 8.07 billion shares outstanding while the stock traded at $38.65, making Bank of America's market value or market capitalization $312 billion (8.07 billion * 38.65). As of Dec. 31, 2021, Bank of America's market value was $359 billion.

The face value of a company does not change unless stock splits occur.

I've to know tangible assets and intangible assets.

The price-to-book (P/B) ratio has been favored by value investors for decades and is widely used by market analysts. Traditionally, any value under 1.0 is considered a good P/B value, indicating a potentially . However, value investors often consider stocks with a P/B value under 3.0.

P/B (price to book ratio)ratio= market value per share/ book value per share

Lower P/B ratio= oil, manufacturing, etc. like Adani Power

Higher P/B ratio= tech like TCS because their book value is lower as compared to asset-heavy industries.

Historical P/B ratio, competitor PB to estimate the right value of the stock.

Assetyogi will teach me in upcoming videos about PE and PB ratio.

face value= equity capital/ no. of the outstanding share

key concepts of private LTD. company

If you are getting started with a business, here are 3 options to open up a business

proprietary form
partnership form
private LTD.

proprietary form-

In this, you will pay tax on your name, pay bills, and receives checks. Indirectly, you will run your business individually.

However, let's say, you have a debt of 1 crore from Axis bank. And somehow you are unable to pay off that amount, the bank will sell all the assets you have such as your car, home, etc. to recover that 1 crore.

partnership form-

let's say, A has 70% equity and B has 30%, if A has fewer assets than B and the company has a debt of 1 crore then, the company will gain money by selling A and B all assets.

Private LTD company-

up to 50 shareholders

A and B started a company.

A=70% shares

B=3O% shares

bankrupt

personal assets of the founder will not be sold for recovering the money. The bank will recover money by selling the company's assets.

lets a company worth 70 lacs, the company will get it easily.

However, they can't touch personal assets.

Limited liability partnership is also available in India who will start their business.

Public LTD company- does the same as private does

More than 50 shareholders and limited liability. It means no one will touch your personal assets.

The authorized capitPaid-up up capital

Initially, promoters invest some capital to issue some shares. (private ltd. company)

let's assume, F.V= 10

authorized capital=10lacs

then, only 1lakh shares can be issued.

they can not issue shares of more than 1 lakh, further, they have to get permission from the govt.

but, promoters thought that they will only issue 60,000 shares, issued capital=6laks

they let 40000 out get future acquire funds through the market.

issued=paid up capital= it might be slightly different in public ltd. company.

reverse of issued capital= unissued capital

Preference(preferred) and equity shares

when a company tends to raise capital from its investors, It lists its shares through equity funds.

shareholders- owners 50%

common share investors-35%

preference share investors-15%

preference shares

dividends fixed14%
first preference holders
preference shares do not trade on the stock market
no impact with stock price fluctuation, they have to do with only dividends
lesser risk, fixed returns
no voting rights to choose a board of directors
not a part of management
financial insti, wealthy individuals, family officers

equity shares

no guarantee
equity share after preference
trade
impact
higher risk, higher return
voting rights are available
part of management
institutional and retail
it can be converted to common equity, buy back by companies

For types of preference shares,

you have to look at your share certificate where all data are present.

read terms and conditions.

fixed dividends=14% for 10 years

1 paid, 2nd= not paid, 3rd= not paid, 4th= triple dividend, the company can not get away from its liabilities.

This is called cumulative.

Non-cumulative-

not adding, a benefit for the company,

convertible preference shares= are converted after some time to equity shares.

Non- convertable= no

Redeemable preference shares=

company will buy back after some time at the issued price.

Non-redeamable= not available, it is not allowed in India

all shares must be redeemed between 20 years in India, act 2013

Collable=

company will buy back after the pre-defined date and at a pre-defined price.

I will watch this video later

https://youtu.be/vLMlY7Zj3s4

Why do stock prices go up and down?

stock market's information is 90% useless and 10% relevant.

demand and supply rule

which type of information is coming out from the company?

annual report comes one time a year.

quarterly earnings reports 4 times a year.

court cases of a company and how it is running, positive or negative

company's press releases

news stories

social media

how the market buzz is?

traders and investors follow this information with a different approach.

The information may be positive in the short term and negative in the long term. or vice-versa

key thing, we have to analyze which information is relevant or not

To process this information, we should know the 4 factors

1. company fundamental.

earnings, the company is profitable or not,

will the company recover, how it works

current earnings is much more crucial

future growth- how, we have to predict it

we're not going in detail in this tut? Later, do this

2. management team and governance are going

in past may be fraud Hua hai is a company mein

3. competitive advantage

is there anything that company holds that can not be replicated?

4. expansion plans of that company

will the company launch some new products in the market?

5. check the debt of a company

it's a negative impact,

6. promoters share pledging

agar promoters shares ke badle loans Liya hai to yah Ek negative impact hai

these fundamentals affect in long term for investors.

If we look at the short terms, we see technical factors

1. liquidity of shares

large-cap shares liquidity is high

small cap= liquidity of shares. not easy, even if the company provides good services

2. positive news and negative news.

how is sentiment for that company

3. charts and patterns

overall, nifty and Sensex level checking out like market is overpriced or underpriced

delivery percentage

PE multiple is less than 18, we can say it's underpriced.

more than 25, overpriced

macro and micro-economic factors

it affects in short term and long term.

1. socio-political stability

majority govt.= market showed the positive, bjp or congress.

2. govt. policies

business-friendly policies for the company

infrastructure, solar power company depends on govt.

Indian and world economy how going, GDP growth rate

jaha pe hamari company operate kar rahi hai waha country kya kar rahi hai

3. inflation

4. competing investments.

fd, bonds, people find other sources to earn money

our 4th factor is mostly unpredictable

human sentiment

how do people are reacting after seeing all these data

information asymmetry

kuch info aapke pass jyada ho aur mere pass kam ho

let's see the auto sector.

BS6 norms

govt, pushing towards electric vehicle

shared cab services like ola and rubber

Stock market participants=

investors and traders have the important artifacts

long term= investors

retail= local public

institutional investors= mutual funds, insurance companies, foreign in

It's also called ket makers because they invest a very ha high amount.

corporate= company other

trading member= they collect orders

our shares do not store on a stock exchange like BSE or NSE.

Depository(NSDL/CDSL)= our Demat account opens in the depository.

depository paritcipants= tells that some shares will transfer to the buyer account, and it tells to the depository.

clearing house(NSE clearing/ICCL)= acts as sellers for buyers and vice-versa

clearing members(custodian)- it gives a guarantee to buyers and sellers.

clearing account/ clearing banks

The broker acts as a depository participant, custodian, and trading member.

IPO

registrar to issue and share transfer agent.

registrar to issue- record keeping of shareholder

share transfer agent make sure the name changed of the share after selling

IPO process is managed by the lead manager such as investment banks, merchant banks, and underwriters.

Share delivery-T+2 clearing and settlement process

I will later see this video. I know a little bit about this video.

IPO kya hai aur kaise kam karta hai

why IPO?

to expand a company
pare to debt
exit to previous investors

IPO process;

step1;

hire an investment bank(merchant bank) like icici, HDFC, SBI, etc.

reputation and track record
quality of research
distribution of expertise
prior relationship

step 2= due diligence and fillings

underwriting=

firm commitment= we will market your shares in the market. We make sure all your shares can be sold and if somehow you did not get enough funds then we will give funds as per the requirements. Moreover, if we gain more funds then we will keep them.
best efforts commitment= issue price, valuation, all things they can do. However, they do not guarantee how the responses will come to the company.
syndicate underwriting= merchant banks sometimes do not handle all this process, that's why they appoint some banks to work with and allocate some tasks to other banks. That way this process does work.
Red herring prospectus= business and promoters details, competitive advantage, capital structure, future business plans, risks and opportunities, past financial data,

compliance and filling= guidelines

SEBI
NSE/BSE
securities contract act(regulation)
companies act

step 3=

pricing=

valuation of a company, let's say 10,000 crores, 20% dilute, means 2000 cr
issue size= 2000 cr
issue price=200/share
no. of shares to be issued= 10cr
LOT size= booking share, let's say 40, it means you'll have to buy at least 40 shares.
minimum investment= 40*200=LOL

fixed price issue= 200 per share

Book building issue=

price band= 180-200

floor price= 180

cap price= 200

maxi. The difference must be 20% between the floor price and cap price.

step04= distribution

qualified institutional investors, non-institution investors, and retail investors.

step5=application process

hard

step6= share allotment

step7- listing the on the stock exchange

bidding offer open=3-5 days

UPI and ASBA application

listing in 3 days from the closing date

issuer= faster access to capital

investors- liquidity

IPO share allotment Process

categories of investors

retail investors less than 2 lakhs like me and you

Non-institutional investors/ NII more than 2 lakhs

(qualified institutional buyers) like banks, foreign institutions, mutual funds, insurance funds, pension funds, venture capital firms, and provided funds. These are called Anchor investors/ other QIB

reserved categories- employees, shareholders,

1. qualified institutional investors

let's say 5cr quote

anchor investors(who invest lots of money)= minimum 10cr. bid, max 60% QIB, 1/3 of anchor domestic mutual funds(1cr. ), 2/3= other anchor investors(2 cr. )

5-3=2

other QIB= 2cr

qib allotment

Important conditions

min. subscription-90%

IPO gets crap if the requirement share allotment does not happen. And people get their money back.

let's say= 10cr. shares.

and 9cr. shares allotted, it will be failed

min. application

value=10000-15000

e.g issue price= 250

LOT Size= 50 shares, as a retail investor you will have to buy 50 shares

Bid amount=

retail investors. MAX. 2lakhs

QIB(qualified institutional buyers) AND NII= more than 2 lakhs

employee= max. 5lakhs shares bought

Bidding at cap(cut-off) price

retail- yes

QIB and NII= no

revise Bids before the closing date

retail= yes

QIB and NII= no

PROmoters contribution

Mini. 20% post-issue capital

lock in 3 years.

fixed price issue=

issue size= 2500cr

no. of shares to be issued= 10cr. shares

issue price= 250 per share

LOT size= 50shares

min. investment=12500

Allotment quota

retail- mine. 50%

balance- HNI, corporates, institutions, Reserved = 40%

Book Building issue= It's like a test in the market to get the exact valuation

issue size= 2250-2500cr

no. of shares to be issued= 10cr.

floor price= 225

cap price= 250

lot-50shares

min. = 11500-12500

20% gap

Allotment quota= retail- min. 35%

NII= min 15%

QIB= 50%

merchant bankers decided on the final price of a single share= of 240

mini. investment= 12000

Allotment quota= retail=40%, NII- 15%, QIB- 45%(4.5cr.)

differert scenerio=

subscription= less than 90%{9cr.}, no allotment will happen

subscription- 90-100%(09-10cr.)

full allotment to all investors

slightly over subscribed=15cr.

1 LOT to every investor

balance shares- proportionate allotment

NII AND QIB= proportionate allotment

over-over subscription= 100cr.

retail- 1 LOT

1 LOT each to investors selected by computerized lucky draw

NII AND QIB= proportionate allotment

IPO book-building process(SEBI recommends) in India

1. pricing

valuation, 1, comparables(PE, PB ratio), discounted cash flow
type of issue= fixed price issue, and book-building issue

book building issue=

floor price- 225

cap price- 250

LOT=50 shares

min. = 11250-12500

lower risk for the issuer/underwriter

price discovered based on formulas and market demand

Tick size= 5, like 225, 230, 235, 240, 245

let's see the bids

250-4cr(cap price)

245-5cr

240-2.5cr

235-3cr

230-3.5cr

225-4cr(floor price)

240= cut-off price(fair price)

retail- cut off- yes,

Market cap to GDP ratio(Buffett indicator)

whether the stock market is over-valued or under-valued.

This is only for India.

BI= total market cap/ GDP *100

price to sales ratio= Price/sales, if the number we get is more than 1, it is overvalued, and less than 1 is under-valued.

100% more than= over

less than= undervalued

for India, we will take 75,

more than 75=over valued

less than 75=under valued

limitation of BI= only price to sales, not profitability.
Why companies are buying back shares during covid-19 in India?

companies name which is buying back= Motilal Oswal, EMAMI, sun pharma,

share buyback= 1. market rate, 2. fixed price

why buyback? stock fairly/overvalued, dividends or share buyback

2nd, = undervalued, boost the confidence of shareholders, increase promoter shareholding, EPS increases.

Flipside= no future investment ideas, inflated EPS, no cash for emergencies,

VEDANTA COMPANY delisting process

delisting= turning the company into a private ltd. the company the from sthe tock exchange.

floor price= 87.25

1. involuntary-

bankruptcy

merger

does not meet the listing requireThe voluntary

The voluntary process of delisting

seeks to become private, with costs of being publically listed benefits.

I will later see this video.

Bonus shares issue and stock split,

stock split= 1:2 split, 1 share converted into 2 shares, shares for every share held, and 1:5 split means(5 shares for every share)

before stock split=1:5 split

no. of shares- 100, share price= 300, investment value- 30000

after stock split=

no. of shares- 500, share price- 60, investment value- 30000

company does it, if he thinks the current share price is very high, not everyone can't afford it.

Effects of stock split-

makes share price affordable, generally positive sentiment, increases liquidity and demand

Balance sheet=

shareholder's equity- before bonus

share capital- 10(face value)*1cr shares

reserves=50cr.

total SHE= 60cr

after bonus

share capital= 10cr=2*5cr. shares

reserves=50cr.

total SHE= 60cr.

reverse stock split=

50:1= 1 share for every 50 shares held.

effects for the reverse stock split

penny stock to reasonable stock price, negative sentiment,

Bonus shares=

1:2 bonus= one bonus share for every 2 shares held, in this, you will get one share per every 2 shares as a bonus.

3:1 bonus= 3 shares for every share held

Bonus shares 2:1

BEFORE

no. of shares- 100, share price=300, invest= 30000

after,

no of shares- 300(100+200), 100, invest= 30000

effects=

bonus is shares instead of dividend

generally positive sentiment

increases liquidity, and demand

balance sheet=

share capital= 10cr, 10*1cr

reserves=50 cr.

SHE= 60cr

after bonus

share capital= 30cr, 10*3cr

reserves=30cr

SHE=60CR

from the reserve, a company can grow itself, expand business plans, and pay off dividends, bonuses, and buybacks.

Timeline=

announcement- let's say= 5sep- 14oct, because T+2 cycle runs in India, you'll not get bonus share, you must have shared between 5-14sep to get bonus shares.

ex-bonus= without

EBITDA, EBIT(earnings before interest and taxes), and operating profit

To use this metric, we can check out companies at the operational level.

Balance sheet-

assets-

fixed assets(more than one year), current assets(you can convert them to cash)

Liabilities -long term(pay off more than one year), short term(you have to pay off less than 1 year),

income statement(P and L)-

revenue-expenses=profit

cash flow statement= case in and cash out, cash in-cash out= net cash

EBIT, EBITDA is a metric of profit and loss.

income statement=

let's take a shoe manufacturing company-

revenue- 20000000

COGS= 40lakhs jute nanane ki money(cost of good sold)

gross profit= 1cr. 60lakh

marketing and sales expense= 20lakhs

office and admin ex= 30lakhs

EBITDA= 1cr. 10lakhs( earnings before interest, tax, depreciation, and amortization)

depreciation- 10L

amortization- 0

EBIT=1cr(earnings before interest and tax)

Interest=20lakhs in one year

PBT=80L(profit before tax)

tax 30%= 24lakh

net profit=54lakh

Non-operational expenses=

The two companies' interests and taxes may be different. In addition, depreciation and amortization may be distinct.

interest- financing structure

taxes- depends on geography

depreciation and amortization= past investment, non-cash expense

EBIT and EBITDA= level playing field to compare companies on operations which is the best company of its job

EBITDA=capital intensive, industries,

oil, gas, telecom

EBIT- services industries, technology consultant

operating profit-

EBIT= operating profit

different scenerio=

revenue(operational level)=1.80L cr.

other incom(non-operational)=20L

Total income= 2cr.

COGS=40L

gross profit=1.60

mkt, sales=20L

office and admin=30L

EBITDA=1.10

Depreciation=10L

Amortization=0

EBIT=1cr

interest=20L

PBI=80

tax=24L

NET PROFIT=56L

operating profit=EBIT- NON operating income+non-operating expense

=1cr.-20L=80L

Assets and types of Assets

A resource owned by an individual or company that generates cash flows over the long term.

Assets have economic value and can be exchanged or sold.

example= land, buildings, factory

classification of Assets=

1. convertibility= current(short term) and non-current(long term)

2. physical existense=tangible and intangible

3. usuage= operating assets and non- operating assets

Assets=

current(less than 1 year)= converted into cash

ex= cash, deposits, accounts receivables(lend some things to a man, he did not give the money yet, you can get the money after some time)

short-term investment(less than one year), short-term loans and advances, prepaid expenses(ex-insurance, contractors), inventory(stock),

1. raw materials

2. work in progress

3. finished goods

non-current(more than 1 year)= to convert into cash

fixed assets= land, building, plant, and equipment like computers, printers, vehicles, furniture

long term investment= stocks, bonds, FD, mutual funds, vacant land,

intangible assets= patents, trademark, copyright, media company, goodwill, brand, domain, website, blueprint, software, data bank, medical

other assets= non-current receivables (more than 1 year), fictitious assets,

operating assets= cash, deposits, inventory, fixed assets,

non-operating= account receivables, short- term investment, long-term investment.

Current Assets and Current Liabilities

current assets= current assets are assets that can be turned into cash in less than 1year.

ex= cash and cash equivalent(cash in the bank), short-term FD, mutual funds, account receivable, inventory(raw material, work in progress, finished goods), prepaid expenses like insurance, contractor, short term loan you gave to someone.

current liabilites= current liabilities are liabilities that have to pay off in less than 1 year.

ex- account payable, short-term loan, cash credit, advance Lena from customers, outstanding rent payment, interest payment. term-loan(3-5 years)

Importance=

current ratio= current assets/current liabilities=

let's say= 2:1= current assets is more than current liabilities= company can easily pay off current liabilities.

0.1/1=liabilities is more than current assets=company can't pay off liabilities easily.

working capital=CA-CL{It's a video}

Assets, Liabilities, and Equity

assets=equity+liabilities

assets=resources controlled by an individual or firm that help generates future cash flows

cash flow= is the movement of money that come in and come out during the business of a company.

liabilities=obligation of an individual or firm like debt

equity= Residual ownership claim of individual or firm on the assets(ownership)

Net worth=assets-liabilities

net assets=assets-liabilities

equity= common and preferred

common equity=

preferred=friends and family( I'll give you returns first and I will get the returns later)

common= who will get the returns at last

current assets+non-current assets=equity share capital+reserves surplus+preferred equity+current liabilites+non-current liabilities

common equity= equity share capital= the capital in which you start your business

You make money gradually after tax= reserves and surplus(retained earnings used in the USA)

priority of payments=

1. interest to lenders

2. govt tax.

3. dividends to preferred shareholders

4. reserves and surplus

Financial Ratios and Analysis

1. profitability ratios= how good a company is at making money?, company's competitive position inthe market, income statement(sources of income and expenses)

profit margin= net profit/ sales revenue, higer=better

2. liquidity ratios= how comfortable a company is to pay its debts in the short term?

current ratio=current assets/current liabilities, higher assets= better

3. solvency ratios= how comfortable a company is to pay its long-term debt?, also known

as leverage ratios or debt ratios

debt ratio= total liabilities/total assets

how much debt is used to finance its asset? lower= better

4. activity ratios= measures operational efficiency of a company, how well a company manages its working capital and long term assets to produce more? Also known as efficiency ratios or asset utilization ratios

inventory turnover ratio= cost of goods sold/average inventory

higher= fast turnaround=better

5. valuation ratios= used for investment decisions, what is the right value of company?

earnings per share= net profit/ no. of outstanding shares

P/E ratio= price per share/ earnings per share

low P/E= fairly priced= better for investment

Sabar notes

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