1. Understanding Equity Jargon 

Before we dive deeper into analysis or valuation, it's crucial to be fluent in the language of markets. Let’s simplify some of the most-used equity terms using ABC Tech as our guide.

Basic Valuation Terms

1. Nominal Value (Face Value)

The printed value on the share certificate, let’s say ₹10 for ABC Tech. It’s a legal placeholder and has little to do with market price.

2. Book Value

ABC Tech’s assets minus its liabilities, divided by the number of shares. Think of it as the company’s net worth on paper or the accounting value.

3. Market Value

The current price of a single share of ABC Tech on the stock exchange is ₹340. This reflects what investors are willing to pay.

4. Market Capitalization

It is the Market Value multiplied by total outstanding shares. If ABC Tech has 10 lakh shares at ₹340, the market cap is ₹34 crore. This is the total perceived value of the company.

5. Replacement Value

What it would cost to build ABC Tech from scratch today? This would include its machinery, IP, talent, etc. Often used for evaluating asset-heavy businesses.

6. Intrinsic Value

ABC Tech’s “true worth” based on its future cash flows. If you expect great growth and profits, its intrinsic value could be higher than its current market price and vica-versa.

7. Enterprise Value (EV)

This is equal to Market Cap + Debt - Cash & Investments. EV gives you the total value of ABC Tech as if you were buying the whole business, including it’s debts.

Profitability Metrics

8. Net Profit

ABC Tech’s earnings after all expenses, interest, and tax. The “bottom line” shown on its profit and loss statement.

9. EBIT (Earnings Before Interest & Taxes)

ABC Tech’s operating profit, excluding how it's financed (interest) and taxes. Helps in comparing across companies.

10. EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)

EBIT + Depreciation + Amortization. Useful for understanding pure operational cash earnings before accounting adjustments.

Earnings Timeline

11. Historical Earnings

Profits reported by ABC Tech in the past. For example last year’s or the previous 3 years.

12. Trailing Earnings (TTM)

The earnings of the most recent 12 months. A more current view than just full-year financials.

13. Forward Earnings

Projected profits for the upcoming 12 months. It is often used by analysts to value the stock on expectations.

Per-Share Metrics

14. EPS (Earnings Per Share)

Net profit ÷ Total number of outstanding shares. It tells you how much profit each share of ABC Tech earned.

15. DPS (Dividend Per Share)

If ABC Tech distributes profits, DPS shows how much is given per share. Say it ₹4 per share this year. One can say that the company issued a 40% dividend this year. That is because the dividend is always represented as a percentage of BV. We assigned a BV or ₹10 to ABC Tech at the start of this chapter.

Valuation Ratios

16. P/E Ratio (Price-to-Earnings)

Market Price ÷ EPS. If ABC Tech trades at ₹340 with an EPS of ₹34, P/E is 10. It shows how much investors are willing to pay per ₹1 of earnings. In this case the investors are willing to invest ₹10 for ₹1 earnings per share.

17. P/S Ratio (Price-to-Sales)

Market Cap ÷ Total Revenue. Useful when profits are low or erratic but sales are steady.

18. P/BV Ratio (Price-to-Book Value)

Market Price ÷ Book Value per share. A high ratio could mean the market expects high future growth or the stock is overvalued.

Special Terms

19. DVR (Differential Voting Rights)

ABC Tech could issue DVRs with lower voting power but the same dividends. These usually trade at a discount and attract investors focused on returns, not control.