Showing posts with label What is?. Show all posts
Showing posts with label What is?. Show all posts

Monday, May 8, 2017


Tag/ Label showing "Capital"

Capital is the money invested by the owner(s) of the business to meet the requirements of the business.

In the case of proprietary concerns it is called ‘proprietor’s capital’ and if it were a partnership firm it is called ‘partners’ capital’.

Share and Share Capital

During the colonial period businessmen found that it required a lot more capital to organise trade venture to far-off countries. Besides huge financial requirements, the ventures were fraught with a risk that is impossible for one or few individuals to bear. This resulted in the creation of joint stock companies, where the huge capital requirement is split into thousands of small units called shares, so that these small units can be easily sold to many hundreds and thousands of investors. The capital raised by the sale of ‘shares’ is called the ‘share capital’.

Share Certificate of "The Empire Jute Company Limited"

Limited Liability

Considering the large risks involved in the voyages/ ventures, by law the risk also was limited only to the amount invested, leaving the investors’ personal properties safe and untouched in the event the venture/ company failed. This was not and even today is not the case with proprietary concerns and partnership firms. The word 'Limited', 'Ltd.' in the short form are derived from and denote the limited or restricted liability of the shareholders or owners in the case of a joint stock company. 

The East India Company is good example of a joint stock company.
Coat of Arms of East India Company

Equity and Preference Capital and Shares

Later evolution and sophistication resulted into two popular types of share capital, equity and preference (also called preferred).

Picture shows Share, Equity Share and Preference Share
In a nutshell, preference shares enjoy priority in terms of payment dividends as well as repayment of principal over equity shares.

Equity shares though least in priority and more risky nevertheless are bestowed with a feature of participation in the surplus. Equity shares are crafted based on the principle rewards is proportionate to risks.

Capital is a Liability of the Business

In the modern commercial world, the owner(s) of the enterprise and the business are treated as separate entities. Therefore the business treats the money invested by the owners/ shareholders as money it owes to the owners. shareholders and therefore in the account books of the business the capital is shown as a liability. In the balance sheet, capital is listed on the liabilities side.

Conservative Enterprise Limited.
Balance Sheet as at 31st March 2017
Fixed Assets
Net Worth
Trades payable
Cash & Cash Equivalents
Total Assets
Total Liabilities
Of course in terms of priority in repayment, in the event of liquidation of the business, capital comes last. This means that when a business is being wound-up, the assets of the business are sold and the proceeds are utilised to repay the sums owed to various parties, including the owners/ shareholders, in the following order of priority:

In conclusion, capital is owner(s) investment in the business. In the case of a company it is called share capital. It is a liability owed to the owners. It is the last item to be repaid in the event of liquidation of a business.

Monday, May 1, 2017

Which Stocks Constitute the BSE Sensex?

Bombay Stock Exchange Building

The name S&P BSE Sensex stands for the S&P Bombay Stock Exchange Sensitive Index. It is also called the BSE 30 or simply the Sensex.

It is one of the most popular indices and is considered as the barometer of the Indian stock market. 
BSE Sensex is a free-float, market-weighted stock market index of the 30 companies that have the highest market capitalisation.
Instead of taking the total market capitalisation, the exchange has adopted the free-float market capitalisation, meaning that the promoter/ directors holdings are deducted from the total equity shares to arrive at the number of shares that are freely available for trading. Such number of free-floating equity shares, multiplied by the share price yields the free-float market capitalisation.


Table showing 30 constituents of the Sensex

It goes without saying that the above composition will undergo changes from time to time as the fortunes of the constituents change and the market capitalisation may rise and fall, resulting in the induction of new constituents and corresponding drop of a few candidates.
To conclude, 30 companies having the highest market capitalisation constitute the S&P BSE Sensex.

Wednesday, November 2, 2016

What is the Differences Between Fundamental and Technical Analysis?

Fundamental Analysis:

Fundamental Analysis involves studying company performance and market conditions
Picture Depicts the Concept of Fundamental Analysis

Fundamental analysis is a thorough analysis of company carried out with the intention of buying the shares for long-term investment. It is based on studying the profitability of the operations, assets and liabilities position, cash flows, etc., going as far back into the past as possible. During the process a number of important ratios as under are derived and used:
  1. Profitability Ratios: EBDITA, EBT, PBT and PAT margins.
  2. Liquidity Ratios: Current and Quick Ratios.
  3. Long term Leverage Ratios: Debt-Equity and TOL/ TNW.
  4. Market Conditions: PE Ratio, Price to Book Value, Dividend Yield, Distance fro 52 week-low. Five-Year Returns.

Picture showing various fundamental analysis ratios of Infosys
Picture Shows Fundamentals of Infosy Share

Technical Analysis:

Technical Analysis is the charting the price movements and attempting to interpret short-term market behaviour of stock with intention of making a profit from trading in stocks, commodities and currencies and their derivatives.

Candle Stick Technical Chart of Infosys Share from may to october 2016
Candle Stick Chart of Infosys Ltd. Share from May to October 2016

Differences between Fundamental and Technical Analysis:

Differences Between Fundamental and Technical Analysis
Sl. No.
Fundamental Analysis
Technical Analysis
Rational Science
Pseudo Science
Current Market Price is one of the inputs
Market prices and their movements is the only input – facts relating company’s performance are not relevant
Used for evaluating fitness of stocks for long term investment
Used for taking short terms positions
Does not involve market prediction
Prediction of future market behavior is the sole purpose of technical analysis
Used by investors
Used by day traders and margin traders
Primarily intended for taking delivery of scrips
Not intended for taking delivery – trades are primarily meant to be squared-off within the same day or by the end of the contract period
Only relates physical shares
Primarily relates derivatives like futures and options but also involves physical shares in the intra-day trading


While fundamental analysis is an exacting and rational discipline, technical analysis is a false study endeavouring to derive legitimacy from the use of charts and graphs and the lofty sounding name. Whatever realisation of predictions may be owing to the innumerable practitioners acting according to the interpretation of the pattern and not directly caused by the pattern – something akin to divination of future employed in the ancient times.