The mutual fund universe is filled with hundreds of schemes. And this universe is expanding very rapidly. This is a good development. More schemes mean more choices for an investor. Also, the increasing competition amongst the Asset Management Companies (AMCs) has raised the fund management quality, improved the service standards and spread the investment culture.

But as the universe expands to unmanageably large size, it becomes increasingly difficult to spot the brightest of the stars. One has to patiently work through the universe using certain yardsticks and separate the brighter stars from the not-so bright ones.

(more…)

The market is usually more concerned about the future than the present; it is always looking for some way to figure out what is going to happen in the company’s future. A ratio that will help you look at future earnings growth is called the PEG ratio. You calculate the PEG by taking the P/E and dividing it by the projected growth in earnings.

(more…)

The price earnings ratio is the ratio of the market price per share to the earnings per share i.e.

PE =  Market Price per share
            Earning per share

The earnings per share (EPS) is basically considered on the basis of net profit for the last four quarters. This is popularly known as the trailing P/E. When the EPS is based on the expected earnings for the next few quarters, then what one gets is known as the forward P/E. There is also a third variation that takes the in-between path, where the EPS for the last two quarters and forward earnings for the next two quarters are taken into account.

(more…)

P/BV is a valuation ratio and is arrived at by dividing the market price of a share with the respective company’s book value per share. Now, book value is equal to the shareholder’s equity (share capital plus reserves and surplus). Book value can also be arrived at by subtracting current liabilities and debt from total assets. For the banking and finance companies, book value is calculated as ’share capital plus reserves minus miscellaneous assets not written off. This formula then takes care of the bank’s NPAs and gives a correct picture.

(more…)

A dividend is a manner in which a company shares its wealth, which it generates out of the course of business with the shareholders. Dividends are paid to a shareholder on a quarterly or half yearly or on an annual basis. Dividends, by the name of dividends have to be mandatory paid in cash as per Section 205 (3) of the Companies Act 1956. However, another form of dividend though not termed, as dividend is the issue of bonus shares, which for all financial purposes is also a proxy for dividends. Companies have an option of paying out dividends out of their current earnings after tax or out of retained earnings. Companies in a high growth phase normally deploy the complete earnings in the business and so tend to not give dividends, but companies, which are in a stable phase, normally share it with the investors as dividends.

(more…)