Knowledge Center
VCK Share Stock Broking Services LTD – FAQs
ADR (AMERICAN DEPOSITORY RECEIPT)
An ADR represents a security of a foreign company listed in the US markets. The processes for certificate, settlement, and transfer for ADRs mirror those required for US securities as per guidelines set by the US SEC (United States’ Security Exchange Commission). Domestic companies issuing ADRs include Infosys Technologies (INFY) and Wipro Technologies (WIT), among others
ARBITRAGE
Arbitrage presents an opportunity to profit from two offsetting transactions with zero risk. It involves identifying price differentials for the same asset at different locations and simultaneously buying where it’s cheaper and selling where it’s more expensive. Such transactions yield profits without exposure to risk.
BASIS POINT
A basis point is one-hundredth of a percentage point and is commonly used when discussing interest rates. For example, an increase of 50 basis points in interest rates signifies a rise of 0.50%. A percentage comprises 100 basis points.
BASKET TRADING
Basket trading allows investors to buy or sell all 30 scrips of Sensex or 50 stocks of Nifty, in proportions matching their current weights in the indices, in a single transaction.
BONUS SHARES ISSUE
Bonus shares are newly issued shares distributed to existing shareholders at zero cost in a certain ratio. This is done by utilizing reserves built up through a company’s operations.
BOOK VALUE (PER SHARE)
Book value per share represents the amount of shareholders’ funds per unit share. It indicates the money that a single share owner would realize. Book value is similar to Net Asset Value (NAV) but can be a conservative estimate as assets are valued at cost.
BREAK-EVEN
Break-even is the point where neither profit nor loss is incurred. It occurs when the net value of a project is zero, indicating that inflows equal outflows. Break-even analysis determines the level of sales required to achieve this point.
BUSINESS CYCLE
The economy operates in a cyclical manner, characterized by periods of expansion (boom) and contraction (recession). These phases are driven by changes in demand, investment, profits, employment, and purchasing power.
BUYBACK
Buyback refers to a company repurchasing its own shares using surplus cash. This can be done to signal undervaluation, prevent a takeover, or for strategic reasons.
CAPITAL EXPENDITURE (CAPEX)
Capex is expenditure undertaken by a company to build capital assets such as plants and machinery. These expenses are spread over time as the benefits accrue.
CAPITAL ADEQUACY
Capital adequacy refers to the level of capital required by banks and financial institutions to meet regulatory standards. It is measured by the Capital Adequacy Ratio (CAR), calculated as Net worth divided by borrowings.
CAPITAL EMPLOYED
Capital employed represents the total capital utilized in a business and is calculated as the sum of net worth and long-term debt.
CAPITAL GAIN
Capital gain is the increase in the value of an investment over its purchase price. It is calculated as the current price minus the cost price.
CAPITAL INTENSIVE BUSINESS / PROJECTS
Capital-intensive businesses require significant investment in relation to output. Industries like cement, steel, and oil refining fall into this category.
CEPS (CASH EARNINGS PER SHARE)
CEPS is calculated by adding net profit and depreciation per share. It represents the cash profits generated by a company’s operations.
CIRCUIT / CIRCUIT BREAKER
Circuit breakers are mechanisms to limit excessive volatility in stock prices. Stocks are restricted from moving beyond certain limits during a single trading session.
COMPOUNDING
Compounding refers to the process where investment returns generate additional earnings, which are then reinvested to generate further returns. It demonstrates the power of exponential growth over time.
COST OF CARRY
Cost of carry refers to the cost of financing an investment or asset from one settlement period to another.
CUM-DIVIDEND
Cum-dividend indicates that a stock includes the right to receive dividends. Purchasers or transferors of cum-dividend stocks are entitled to dividends.
DEMERGER
Demerger involves splitting a business into parts or creating a separate entity from a division of a business entity.
DISCOUNTED CASH FLOW
Discounted cash flow calculates the present value of future cash flows by applying discount factors. It considers the time value of money, where a rupee received today is worth more than a rupee received in the future.
DIVEST
Divestment refers to selling an ongoing business, operational division, or an entire business entity.
DIVIDEND YIELD
Dividend yield is the total annual dividend paid on each outstanding share of a company divided by the current share price.
DJIA (DOW JONES INDUSTRIAL AVERAGE)
DJIA is the oldest equity stock index representing the movement of 30 actively traded blue-chip stocks on the New York Stock Exchange (NYSE).
EARNINGS YIELD
Earnings yield is the ratio of earnings per share to price per share, representing the earnings generated relative to the price of the stock.
EV (ENTERPRISE VALUE)
Enterprise value is the sum of a company’s market capitalization and debt, minus cash.
EPS (EARNING PER SHARE)
EPS is the ratio of net profit to outstanding equity capital, indicating the earnings generated per share.
EQUITY DILUTION
Equity dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders.
EQUITY RESTRUCTURING
Equity restructuring involves changing the mix of owned and borrowed funds in a company’s capital structure.
ESCROW
Escrow is an account where money is held by a third party for specific purposes or until certain conditions are met.
ESOP (EMPLOYEE STOCK OPTION PLAN)
ESOP is a trust established by a company to allocate some of its equity capital to employees over time.
EX-DIVIDEND
Ex-dividend means that a stock is traded after the announcement of dividends. Purchasers of ex-dividend stocks do not receive the latest dividend.
FACE VALUE
Face value is the nominal value assigned to a share at the time of issue, typically calculated by dividing equity capital by the number of shares.
FRAGMENTED INDUSTRY
A fragmented industry is characterized by numerous players with no dominant market share.
FREE CASH FLOW
Free cash flow is the cash profit of a company reduced by capital expenditure and other necessary expenses.
GAAP (GENERALLY ACCEPTED ACCOUNTING PRACTICES)
GAAP comprises accounting rules, conventions, and standards widely accepted and used for corporate governance and financial reporting.
GEARING / LEVERAGING
Gearing or leveraging involves the use of debt in a company’s finances, calculated as the ratio of total debt to net worth.
GREEN SHOE OPTION
The green shoe option allows the issuer to retain over-subscription amounts from a fresh public issue, subject to regulatory approval.
HEDGING
Hedging involves taking positions in financial securities to offset potential losses from other investments.
HOLDING COMPANY / SUBSIDIARY COMPANY
A holding company owns shares in another company, known as its subsidiary.
HYBRID CAPITAL
Hybrid capital has characteristics of both debt and equity, such as convertible debentures.
INSIDER TRADING
Insider trading involves trading on non-public information.
INTEREST COVERAGE RATIO
Interest coverage ratio measures a firm’s ability to service its interest obligations from operations, calculated as profit before interest and taxes divided by interest expenses.
INTEREST RATE FUTURES
Interest rate futures are contracts to buy or sell a specified amount of a financial instrument at a predetermined price on a future date.
INTRADAY TRADING
Intraday trading involves buying and selling financial instruments within the same trading day to profit from short-term price movements.
ISSUE PRICE
The issue price is the price at which a company offers its securities to the public for the first time.
JOINT VENTURE
A joint venture is a business arrangement where two or more parties come together to undertake a specific project or business activity.
LEVERAGE
Leverage is the use of borrowed funds to increase the return on investment.
LEVERAGED BUYOUT (LBO)
A leveraged buyout involves acquiring a company using a significant amount of borrowed funds.
LIMIT ORDER
A limit order is an order to buy or sell a security at a specified price or better.
LIQUIDITY
Liquidity refers to the ease with which an asset or security can be bought or sold in the market without affecting its price.
LONG POSITION
A long position is the purchase of a financial instrument with the expectation that its price will rise, enabling the investor to profit from the increase.
MARKET CAPITALIZATION
Market capitalization is the total value of a company’s outstanding shares calculated by multiplying the current market price per share by the total number of outstanding shares.
MERGER
A merger involves the combination of two or more companies to form a single entity.
MOU (MEMORANDUM OF UNDERSTANDING)
An MOU is a formal agreement between two or more parties outlining terms and details of a mutual understanding or agreement.
MUTUAL FUND
A mutual fund pools money from investors to invest in a diversified portfolio of securities.
NEGATIVE CASH FLOW
Negative cash flow occurs when a company’s expenses exceed its revenues.
NET WORTH
Net worth is the difference between a company’s total assets and total liabilities.
OPEN INTEREST
Open interest is the total number of outstanding derivative contracts such as futures or options that have not been settled or closed.
OPERATING LEVERAGE
Operating leverage is the extent to which fixed costs are used in a company’s operations, affecting its earnings.
OPERATING PROFIT MARGIN
Operating profit margin is the ratio of operating income to net sales, indicating the percentage of revenue remaining after deducting operating expenses.
OPTION
An option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified period.
ORDINARY SHARES
Ordinary shares represent ownership in a corporation, entitling shareholders to voting rights and dividends.
OVER THE COUNTER (OTC)
Over-the-counter trading involves direct transactions between parties without the supervision of a stock exchange.
PE (PRICE TO EARNINGS) RATIO
PE ratio is the ratio of a company’s current share price to its earnings per share, indicating how much investors are willing to pay per rupee of earnings.
PEG RATIO (PRICE EARNINGS TO GROWTH RATIO)
PEG ratio compares a company’s PE ratio to its expected earnings growth rate, providing insight into a stock’s valuation relative to its growth prospects.
PREFERENCE SHARES
Preference shares are a class of shares that carry preferential rights regarding dividends and distribution of assets in the event of liquidation.
PREMIUM
Premium refers to the price paid for an option contract, representing the total cost of purchasing the option.
PRIME LENDING RATE
Prime lending rate is the interest rate charged by banks to their most creditworthy customers.
PUT OPTION
A put option gives the holder the right to sell an asset at a predetermined price within a specified period.
QUANTITATIVE EASING
Quantitative easing involves central banks purchasing financial assets to inject liquidity into the economy and stimulate spending.
RAISING CAPITAL
Raising capital involves obtaining funds from investors or creditors to finance a company’s operations or investments.
REC (RECEIVABLES)
Receivables are amounts due to a company from its customers for goods or services delivered but not yet paid for.
REPO RATE
Repo rate is the rate at which the central bank lends money to commercial banks for short-term periods.
RETAINED EARNINGS
Retained earnings are profits that a company reinvests in its operations rather than distributing them as dividends.
RETURN ON CAPITAL EMPLOYED (ROCE)
ROCE is a measure of a company’s profitability relative to the total capital employed in the business.
RETURN ON EQUITY (ROE)
ROE is a measure of a company’s profitability relative to shareholders’ equity, indicating how effectively the company is utilizing equity capital to generate profits.
RIGHTS ISSUE
A rights issue allows existing shareholders to purchase additional shares of a company at a discounted price, typically in proportion to their existing holdings.
RISK-RETURN TRADEOFF
The risk-return tradeoff is the principle that potential return rises with an increase in risk. Investors must weigh the potential return against the risk of loss.
SECURITIES TRANSACTION TAX (STT)
STT is a tax levied on transactions involving securities traded on the stock exchange.
SHARE BUYBACK
Share buyback involves a company repurchasing its own shares from the market, reducing the number of outstanding shares.
SHARE CAPITAL
Share capital represents the total value of a company’s issued shares, calculated by multiplying the number of outstanding shares by the face value per share.
SHARE SPLIT
A share split involves dividing existing shares of a company into multiple shares, resulting in a lower face value per share.
SHORT POSITION
A short position is the sale of a borrowed security with the expectation that its price will decline, allowing the investor to buy it back at a lower price.
SPOT MARKET
The spot market is where financial instruments are traded for immediate delivery and settlement.
STOCK EXCHANGE
A stock exchange is a marketplace where securities, such as stocks and bonds, are bought and sold.
SWAP
A swap is a derivative contract in which two parties exchange cash flows or other financial instruments for a specified period.
SYSTEMATIC RISK
Systematic risk, also known as market risk, is the risk inherent to the entire market or an entire market segment.
TAX HAVEN
A tax haven is a jurisdiction with favorable tax laws attracting individuals and businesses seeking to minimize their tax liability.
TENDER OFFER
A tender offer is an invitation by a company to its shareholders to sell their shares at a specified price and within a specified timeframe.
TOP-DOWN ANALYSIS
Top-down analysis involves examining the broader economy and market conditions before focusing on specific sectors or companies.
TRADING VOLUME
Trading volume is the total number of shares or contracts traded in a security or market during a given period.
TREASURY BILLS (T-BILLS)
Treasury bills are short-term debt securities issued by the government, typically with maturities of one year or less.
UNDERWRITING
Underwriting involves assuming the risk of selling a security or financial product, typically in the form of insurance or investment banking services.
UNREALIZED GAIN/LOSS
An unrealized gain or loss is the change in the value of an investment that has not been sold.
VOLATILITY
Volatility refers to the degree of variation in the price of a financial instrument over time, indicating the level of risk.
WEIGHTED AVERAGE COST OF CAPITAL (WACC)
WACC is the average rate of return a company is expected to pay to its investors, calculated by weighting the cost of equity and debt by their respective proportions in the company’s capital structure.
YIELD CURVE
The yield curve is a graphical representation of the relationship between the yield on bonds of the same credit quality but different maturities.
ZERO COUPON BOND
A zero coupon bond is a debt security that pays no interest and is traded at a discount from its face value, with the full face value paid at maturity.