Basics of Stock Market

Capital Classification:
Authorized capital: Indicates the level of capital a company is permit to collect from the investors.
For instance, if GP has an authorized capital of 1 billion then it can collect maximum of 1 billion taka capital from investors. If this company has collected 1 billion taka from investors by this time, the company can't issue any Right share or stock dividend to increase its capital base. Cause Company has no further permission to increase the capital base. But of course if they wish they can apply for raising authorized capital so that they can issue more stocks further. This is how whenever a firm increase it's authorized capital base it signals that the firm has expansion plan and thus they will raise more capital through right issue, stock divided or with retaining more (less cash dividend and no stock or right to shareholder).

Paid up capital: It is the capital which is already collected from investors.
For Instance: in the above example GP has collected 1 billion as capital and thus the paid up capital is 1 billion. This is helpful to analyze the situations like regulatory move to increase paid up capital. For example recent regulatory change of bank, insurance and leasing companies paid up capital requires such knowledge to identify investment opportunity.

Net Asset Value (NAV) current market price: Net Asset Value (NAV) cost price basis:
For Instance, I bought 100 GP at 1000 TK, then the total NAV of GP at cost price will be 1000 TK. Now if the market price is 5000 TK then the total NAV of GP at market price basis will be 5000 TK and the unit basis NAV can be obtained by dividing the total NAV by the number of units outstanding in the market.

Dividend yield: Dividend yield is the return calculated on your buying price resulting from declared dividend. For instance: If GP declares a 20% dividend and you buy GP stock for 5000 TK. In that case you will receive 200 TK as dividend (Face value of GP stock is 1000 TK so 20% on 1000 TK. is 2000 TK). But as you bought the stock for 5000 TK your return is not 20% rather your return is 200/5000 = 4% only. This is called dividend yield.

Circuit Breaker: This is an automated system introduced by both DSE and CSE. In this system a specific stock cannot increase or decrease more than a specific percentage point.
For instance: Previous day close price of GP 5000 TK. and the circuit breaker is 10%. It means GP share price will not rise more than 10% today even it won't fall more than 10% today. So in a single day it's highest price can be 5000 + 5000 x 10%=5500 TK and the lowest price will be 4500 TK. This system is introduced to tackle unusual volatility in the stock market.

LTP: Last Trade Price of a specific company in a day. The latest trade took place in this price.
Last Closing Price: When market closes, the last 10 minutes price is averaged and declared as the close price.

Volume: Volume indicates how many stock of a specific company is traded in a single trading day.

High Price: This is the highest price of a stock in a single trading day.

Low Price: This is the lowest trade price in a single trading day.

Trade: It indicates how many transaction of a single stock took place in a day.

52 Weeks Range: It means that what was the highest and lowest price of a stock in last 52 weeks. For example if today GP's 52 weeks range shows 4000-5000 it means that GP stock was traded lowest at 4000 TK in last 52 weeks and highest at 5000 TK in last 52 weeks. Usually it is updated every month on DSE website.

IPO: Initial Public Offering. When any company offers their stock to general public for the first time it is called Initial Public Offering. A company can offer stock to the public again and again. Those are called Public Offering.

Private Placement: When a company sells it's shares to institutional or individual investors through private negotiation rather offering their shares to the public it is called private placement.

Broker: A broker is an intermediary who works as a media to bring together buyer and seller. And it takes commission form the buy/sales made. A broker must be listed member of any stock exchange (i.e DSE, CSE)

Face Value (FV): This is the value assigned to a smallest part of ownership of a company. For example in case of the GP the from the examples Face Value of a share of GP is 1000 TK

Market Value (MV): When someone sees a good business prospect of a company then he may be will to buy it other than the face value. It may be a higher price. For instance at present GP’s stock is trading around 5000 TK. So its market value (MV) is 5000 TK now.

Market Lot (ML): Every firm has millions of stock in the market. If every piece of stock is traded separately it will generate tedious clerical job and the system won't support so many trades per day. Moreover the trading cost per trade will be intolerable. To face such problem stocks of different companies are traded in bunches. Then every bunch is traded in the market. Every bunch is called a lot (market lot). For example you have to buy at least 50 stocks at a time in a bunch if you want to buy GP’s stock. So the market lot (ML) of GP’s stock is 50.

Earning Per Share (EPS): Earning per share indicates how much profit is earned per share. For example if GP is divided in 10 million stock and GP makes a profit of 100 million TK then earning per share of GP is (10000 million TK / 10 million shares = 1000 TK.) 1000 TK. EPS is calculated through dividing the total profit buy total number of securities/stock.

Price Earning Ratio (PER): It indicates that what is the price of a stock in relation to EPS. For instance, GP price is now 5000 TK in the market and it's EPS is 1000 TK. Then it's price earning ratio (PER) is (5000 TK/100 TK) 50 times. It also indicates that if someone buy a GP stock for 5000 TK today the company will earn the same amount of earning for that stock in 50 years.

Dividend: It’s the portion of profit given to the shareholders. Dividend is usually expressed in percentage basis or per share basis. For instance, now if GP declares a 100% dividend to the shareholders it indicates that every shareholder will get 1000 TK per share. Dividend is calculated on Face Value not on the market value. The dividend declaration depends on the profit earned by the company, company’s payout ratio, investing policy etc.

Stock dividend: In some cases company may earn some profit. But it may need some extra money for further growth of the company. In that case the company may retain the profit earned. It won’t declare cash dividend. Rather it will declare stock dividend. In that case an investor will get a few more stock of that company for free. For Instance, if Gp declares a 100% stock dividend it means if you hold 100 stocks of GP you will get 100 stocks free. This is a very nice system for company growth. In this system company can retain its needed cash for further investment and stock holders also get some benefit.

Right issue: In some cases business may need immediate money in the middle of the year or for any reason. May be it need some more cash for business growth. In that case the company can issue fresh share in the market. But according to regulation the existing shareholders have the priority to buy the shares. So when the company decides to issue new shares in the market at first it offers the shares to existing shareholders of the company. As existing shareholders get the shares according to their right it is called right issue. But if the existing shareholders decline to buy the new shares the company can issue the shares to general public as fresh IPO.

Stock: Stock is a part of a company’s ownership.

Bond: On the other hand when you lend a firm some money and in return it gives you a certificate which is called bond. The firm can anytime payback your money. You are a lender of the firm only not an owner.

Debenture: A debenture is defined as a certificate of agreement of which is given under the company’s and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. A debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is defined as "a debt secured only by the debtor’s earning power, not by a lien on any specific asset

Blue-Chip Company: A company that is very strong financially, with a solid track record of producing earnings and only a moderate amount of debt. A blue-chip company also has a strong name in its industry with dominant products or services. Typically, blue-chip companies are large corporations that have been in business for many years and are considered to be very stable. However, there is no formal requirement for being a blue chip.

AGM: An annual general meeting is a meeting that official bodies, and associations involving the public (including companies with shareholders), are often required by law to hold. An AGM is generally held every year to inform their members of previous and future activities. In organizations run by volunteers or a paid committee, the AGM is generally the forum for the election of officers or directors for the organization. It is an opportunity for the shareholders and partners to receive copies of the company's accounts as well as reviewing fiscal information for the past year and asking any questions regarding the decisions the business will take in the future.

BO Account: This is an account opened by investors to hold their securities in dematerials form with a depository and to carry out the transactions of sale and purchase of such securities in book- entry form through the depository system. A beneficiary account holder is legally entitled for all rights and liabilities attached to the securities. (i.e. equity shares, debentures, government securities, etc.) held in that account. Therefore, the account is called “beneficial owner account”. A beneficiary account can be in the name of an individual, corporate, Minor, Bank, Financial Institution, Trust, etc. or the broker himself for the purpose of his personal investments in dematerials form.

Premium: a bonus paid in addition to normal payments. The premium on stock involves the amount the issuing corporation receives when it issues common stock having a par value. The premium on common stock is the BDT amount that is in excess of the common stock’s par value.
For instance, GP issues one share of its stock having a face value of 1000 TK per share. If the corporation receives 2000 in exchange for the share, 1000 TK will be recorded as the premium on stock

Discount: It is opposite of premium.

DSE 20: The criteria set for the DSE-20 index are: earning per share, minimum market capitalization worth TK 200 million (20 crore), minimum 30% per cent shares in public hand, minimum payment of 10% dividend for the last three consecutive years and 95% trading days in the last six months. Good corporate governance, holding annual general meetings regularly and sectoral representation are the other key conditions for becoming eligible to be included in the index.
Apart from the DSE-20, the prime bourse of the country has two other indices, namely DSE General Index or DGEN, and All Share Price Index or DSI.

Index Calculation Algorithm (according to IFC Index Methodology): Yesterday's Closing Index X Current Marketing CapitalizationCurrent Index = -------------------------------------------------------------------------------------------------------------- Opening Market Capitalization Yesterday's Closing Index X Closing Market CapitalizationClosing Index = -------------------------------------------------------------------------------------------------------------- Opening Market Capitalization Current Market Capitalization = ∑ (Last Trade Price X Total no. of indexed shares)Closing Market Capitalization = ∑ (Closing Price X Total no. of indexed shares)