Equity Terminology

By Fincash

It is always helpful to have a solid glossary at your fingertips for a quick clarification on a particular term. The glossary is also a way to expand your overall equity investment vocabulary.

1. Alpha

Alpha is a measure of the success of your investment or rather outperformance against the benchmark. It measures on how much the fund or stock has performed in the general Market. Alpha is usually a single number (e.g., 1 or 4), and is expressed as a percentage that reflects how an investment performed relative to a benchmark. Read more- Apha

2. Beta

Beta measures volatility in a stock’s price or fund relative to a benchmark and is denoted in positive or negative figures. Investors can use beta as a parameter to determine an investment security's market risk, and hence its appropriateness for a particular investor's risk tolerance. A beta of 1 signifies that the stock’s price moves in line with the market, beta of a greater than 1 designates that the stock is riskier than the market, and a beta of less than 1 means that the stock is less risky than the market. So, lower beta is better in a falling market. In a rising market, high-beta is better. Read more- Beta

3. Market capitalization

Market capitalization, also known as market cap, is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks. Market Cap is the total market value of a company’s outstanding shares. For example, let us assume for a company XYZ, the total number of outstanding shares is INR 2,00,000 and the current price of 1 share= INR 1,500 then the market capitalization of the company XYZ is INR 75,00,00,000 (200000* 1500). Read more- Market capitalization

4. Sharpe Ratio

Sharpe Ratio measures returns with respect to the risk taken. The returns can be both negative and positive. A higher Sharpe ratio means, a higher return without too much risk. Thus, while Investing, investors should choose a fund that shows a higher Sharpe ratio. Sharpe Ratio comes very handy to measure the risk-adjusted returns potential of a Mutual Fund. Read more- Sharpe Ratio

5. Sortino Ratio

The Sortino Ratio is the statistical tool that measures the performance of the investment relative to the downward deviation. The Sortino ratio is a variation of Sharpe Ratio. But, unlike Sharpe ratio, Sortino ratio considers only the downside or negative return. Such a ratio is helpful for investors to assess risk in a better manner than just looking at the returns to the total volatility. As investors are mostly concerned about the downward volatility, Sortino ratio gives a more realistic picture of the downside risk ingrained in the fund or the stock. Read more- Sortino Ratio

6. Standard Deviation

In simple terms, Standard Deviation (SD) is a statistical measure representing the volatility or risk in an instrument. It tells you how much the fund's return can deviate from the historical mean return of the scheme. The higher the SD, higher will be the fluctuations in the returns. If a fund has a 12 percent average rate of return and a standard deviation of 4 percent, its return will Range from 8-16 percent. Read more- Standard Deviation

7. Upside Capture Ratio

The upside capture ratio is used to analyze the performance of a fund manager during bullish runs i.e. when the benchmark had risen. Well, an upside ratio of over 100 means that a given fund has beaten the benchmark during the period of positive returns. A fund having upside capture ratio of say 150 shows that it gained 50 percent more than its benchmark in bull runs. The ratio is expressed in percentage. Read more- Upside Capture Ratio

8. Downside Capture Ratio

The downside capture ratio is used to analyze how a fund manager performed during bear runs i.e. when the benchmark had fallen. With this ratio, you get an idea of how much lesser returns the fund or the scheme has lost as compared to the benchmark at the time of bearish market phase. A downside ratio of less than 100 shows that a given fund has lost less than its benchmark during the phase of dull returns. Read more- Downside Capture Ratio

9. Benchmark

A benchmark is the standard, or a set of standards, used as a point of reference for evaluating performance of a fund or level of quality. A benchmark is a point of reference by which something can be measured. Benchmarks may be drawn from a legal requirements such as environmental regulations firm's own experience or from the experience of other firms in the Industry.

The National Stock Exchange (NSE) Nifty, the Bombay Stock Exchange (BSE) Sensex, S&P BSE 200, CNX Smallcap and CNX Midcap and are some of the known benchmarks that invest in large-company stocks. are some other benchmarks. Read more-Benchmark

10. Bombay Stock Exchange

The Bombay Stock Exchange (BSE) is the first and largest securities market in India and was established in 1875. Bombay Stock Exchange was recognized as an exchange under the Securities Contracts (Regulation) Act in 1957. Its benchmark index, the Sensitive Index (Sensex) was launched in 1986. In 1995, the BSE launched its fully automated trading platform called BSE On-Line Trading system (BOLT) which fully replaced the open outcry system. Read more- Bombay Stock Exchange

11. National Stock Exchange

Till 1992, BSE was the most popular stock exchange in India. BSE used to function as a floor-trading exchange. In 1992 NSE was established as the first demutualized stock exchange in the country. It was also first stock exchange in India to introduce technologically advanced, screen-based trading platform (as opposed to floor-trading of BSE). This screen-based trading platform brought a revolution in bourse business in India. Soon NSE became the preferred stock exchange of traders/investors in India. Read more-National Stock Exchange

12. Private Equity

Private equity is the funds that institutional and retail investors use to acquire public companies or invest in private companies. In simple words, private equity is just Capital or shares of ownership that are not publicly traded or listed unlike stocks. These funds are typically used in acquisitions, expansion of business, or strengthen a firm’s Balance Sheet. . Read more- Private Equity

13. Stockholders' Equity

Stockholders' equity is the remaining amount of assets available to shareholders after all liabilities have been paid. Stockholders' equity is one of the three elements of a corporation's balance sheet and the accounting equation as outlined here: assets = liabilities + stockholders' equity. Stockholders' Equity is also referred to as shareholders' equity. Read more- Stockholders' Equity

14. Stock Market

The stock market refers to public markets that exist for issuing, buying and selling stocks that trade on a stock exchange or over-the-counter. The stock market (also called the share market) gives many avenues to invest money, but this has to be done with analysis (Technical Analysis , fundamental analysis etc) and only then one should take the Call of Investing. Read more- Stock Market

15. Stock Market Crash

A stock market crash is a rapid and often unanticipated drop in stock prices. A stock market crash can be a side effect of major catastrophic events, economic crisis or the collapse of a long-term speculative bubble. Reactionary public panic about a stock market crash can also be a major contributor to it. Stock market crashes are triggered typically by loss of investor confidence after an unexpected event, and are exacerbated by fear. Read more-Stock Market Crash

16. Return on Average Equity

Return on Average Equity (ROAE) is a financial ratio that measures the performance of a company based on its average shareholders' equity outstanding. The return on equity (ROE), a determinant of performance, is calculated by dividing net Income by the ending shareholders' equity value in the balance sheet. The measure is especially useful in situations where a business has been actively selling or buying back its shares, issuing large dividends, or experiencing significant gains or losses. Read more-Return on Average Equity

17. Price-To-Book Ratio- P/B Ratio

The price-to-book ratio measures a company's market price in relation to its Book Value. The ratio denotes how much equity investors are paying for each dollar in net assets. Some people know it as the price-equity ratio. The price-to-book ratio indicates whether or not a company's asset value is comparable to the market price of its stock. For this reason, it can be useful for finding value stocks. It is very useful when valuing companies that are composed of mostly liquid assets, such as finance, insurance, investment and banking firms. Read more- P/B Ratio

18. Earnings Per Share

Earnings Per Share (EPS) is the portion of a company's profit allocated to each share of common stock. EPS serves as an indicator of a company's profitability. It is common for a company to report EPS that are adjusted for extraordinary items, potential share dilution. EPS is a financial ratio, which divides net Earnings available to common shareholders by the total outstanding shares over a certain period of time. Read more- Earnings Per Share

19. Bull Market

A bull market is a period where stocks are going up in value. It is when a investment's price rises over an extended period. Bull market term is commonly used when describing securities, such as stocks, commodities and Bonds. Sometimes it can also used for investments like housing. In a bull market phase investors buy a lot of shares because they expect that the shares will increase in value and that they will be able to make a profit by selling them again. Read more- Bull Market

20. Bear Market

A bear market is a phase of several months or years during which securities prices consistently fall. Bear market is the term typically used in reference to the stock market. But it can also describe specific sectors such as foreign exchange, bond or real estate. In the bear market environment, selling increases and short selling is frequent. During bear market phase, Investing can be risky even for the most seasoned of investors. It is a period marked with falling stock prices. Read more- Bear Market