Archives for 2013

While your money would earn 5% during the year, an 8% inflation would mean that you end the year with a -3% return (5% minus 8%). So, in real terms, your Rs 100 would be worth Rs 97 at the end of the year.

Starting investment – Rs 100
End of year 1 after earning 10% on Rs 100 – Rs 110
End of year 2 after earning 10% on Rs 110 – Rs 121
End of year 3 after earning 10% on Rs 121 – Rs 133
End of year 4 after earning 10% on Rs 133 – Rs 146
End of year 5 after earning 10% on Rs 146 – Rs 161

Rs 100 grows to Rs 140 at the end of Year 1, and Rs 140 declines by 40% (or Rs 56) in Year 2. So at the end of Year 2, you will be left with Rs 100 + Rs 40 – Rs 56 = Rs 84.

Thus, your net return will be “minus 16%”.

The BSE-Sensex has generated around 16.5% annual return over the past 15-20 years.

Income Statement is a financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.

Also known as the “profit and loss statement” or “statement of revenue and expense.”

~ Investopedia

Net profit margin = Net profit divided by Sales.

Thus, a margin would decline when the company’s net profit relative to sales declines.

Even when the net profit declines but sales decline faster, the net profit margin would improve.

On the income statement, net profit adds to the retained earnings line on the balance sheet after dividends are paid. On the cash flow statement, the line items reflect the difference between the cash balance on two balance sheets. For example, if cash on the Dec. 31 2013 balance sheet is Rs 250, and cash on the Dec. 31 2012 balance sheet is Rs 175, then the cash flow statement will explain the Rs 75 change in cash for cash. And the statement of shareholders equity details the changes to the equity on the balance sheet. Really, every financial statement is a summary of changes to the balance sheet.

In many companies, products or services are delivered but no cash changes hands (instead, an invoice is sent to the customer which increases accounts receivable and is a sale but does not add to cash). Neither profit nor retained earnings impacts how soon a company gets its cash. It isn’t until the customer actually pays its bill that cash increases.

Stocks are known as “equities” because each stock share represents a small percentage of ownership in the company, entitling the shareholder to vote in the election of directors and on other matters taken up at shareholder meetings or by proxy.

When you buy stock on margin, you risk losing your entire investment – or much more. In this example an investor used Rs 500 to buy Rs 1,000 worth of stock, borrowing the additional Rs 500 from a brokerage firm to make the purchase. When the stock was sold after dropping 50% in value, its remaining worth was only Rs 500 – the same amount the investor still owed to the brokerage firm for the margin loan.