Investing Basics - Feel free to ask the most basic questions


#819

Continuing the discussion from here as it is digressing from original topic

@dineshssairam , can’t thank you enough for taking the time out to help with our queries.
I have almost zero knowledge when it comes to corporate finance. Trying to learn a few things from fellow boarders.
I tried calculating the ROCE for LTTS, as that is one of the companies, Im tracking currently. I had some questions on the same. Would be very helpful if you can clarify

  1. Other income was significantly high this year. It includes forex gain, dividend income from mutual fund investments and income from some export licences. Should this be excluded from EBIT? Screener includes it though and ROCE according to Screener is 38% .

  2. Working capital calculation:

WC = Non cash current assets - non debt current liabilities

Here is a screenshot of the current assets:

Other financial assets and other current assets have multiple components and depending on what is included and what is excluded, the ROCE varies a lot.

I think that ‘financial assets- others’ must be included entirely and ‘other current assets’ except the service tax and GST components must be included in working capital calculation. Am I correct?

Coming to the current liabilities,

Among other financial liabilities and other current liabilities, I think except unclaimed dividend which is not much ,everything else should be included. Is this the right way to go about it?

  1. Coming to the liquid cash in denominator - this must include all the cash and liquid investments(like FD, MF etc) both current and non current. correct?

Sorry for the long post…


(MHS) #820

Check these vidoes:
https://www.safalniveshak.com/read-financial-statements-1/
https://www.safalniveshak.com/analyze-balance-sheet-1/
https://www.safalniveshak.com/analyze-balance-sheet-2/


(Dinesh Sairam) #821

I would personally exclude non-business income from Operating Income/EBIT. So in this case, yes, Dividends from Mutual Funds / Forex Gains would be excluded. Income from Export Licences, not so sure. Check some previous ARs. If this item is there, it could actually be a recurring business activity.

Both Other Financial Assets and Other Current Assets look like business capital (Working Capital). I would include them in the calculation. Again, the key here is the recurrence. If they sound like business activities and they have been recurring in the last few ARs, then they’re definitely Working Capital.

Unclaimed Dividend isn’t a usual business activity. I wouldn’t bother including it in the calculations. But yes, everything else looks like a regular business activity.

No. You shouldn’t include any item from Non-current Assets. Long lived Assets aren’t ‘liquid’ by nature. From Current Assets, you may include ‘Cash and Cash Equivalents’, ‘Other Bank Balances’ and ‘Investments’.


#822

Thanks @dineshssairam for your help. I finally got the ROCE for LTTS to be 28% which is quite good.


(Mahendra243) #823

Does anyone know of a site which shows all time high price and low price of a stock…not the usually 52wH/l which is available in more sites


(Sandokan) #824

@Mahendra243

Can this not be obtained from the graph showing prices of a stock over the maximum range? Such a graph is available on most sites, including Screener. One just needs to select the price range as “Max”. This is what I usually do.

Does this help?

Sandeep


(Chandragupta) #825

See if it indicates anything meaningful.

The “capital” a software company employs is human capital. It does not appear anywhere on the Balance Sheet. The functional equivalent of Return on Capital Employed for a software company may be Salaries as a percentage of Revenues, and Revenue per Employee.

On the Balance Sheet, the only items of relevance are Receivables and Unbilled Revenue. You may look at the trend here, but dividing profits by these doesn’t lead anywhere. If there is lot of surplus cash, deduct it from market cap while looking at the valuation.


(SOHAN) #826

Hello all.i have seen companies issuing warrants and rights.What are warrants and rights issued by promoters.how do they affect price is stock


(Dinesh Sairam) #827

Warrants are famously called as Employee Stock Options. I’m sure you’ve heard of them. In essence, an ESOP provides the employee with the option to purchase additional share(s) in the company at a pre-fixed rate and a fixed time period.

In Option terminology, the ‘pre-fixed’ rate is called the ‘Strike Price’ and the fixed time period is called the ‘Expiry’. There are a few more stuff that goes into calculation of an Option’s Value. The most used model to value such Options (Even by most Indian firms) is the Black-Scholes-Merton Option Pricing Model.

Usually, a new issue of ESOP reduces the outstanding stock’s value i.e. It takes some value from all the existing shareholders of the company and provides it as an optionality to the person receiving the ESOP. It is a value-destructive activity,

Let me explain with an example. As of 2017, Eicher Motors’ ESOP balance looked like this:

I calculated their ESOP’s value as follows (Using the BSM Option Pricing Model of course):

What this meant is that Eicher Motors’ shareholders could lose Rs. 187.21 in Market Value (Rs. 509.23 Crores, divided by 2.72 Crores outstanding shares) at any point until 2022 (2017 + ~5 years), which at the time was about 0.61% of Eicher Motors’ Market Cap.

Please note this is just an approximation. A more accurate method would be to calculate the value of each option issue individually and then sum it up, which I clearly didn’t do.


(csteja) #828

I need a website which gives top performing sectors given time period? Is there any which you are aware of friends? Thanks.


(Divyanshu Taneja) #829

Can a public limited company is allowed to conduct a board meeting without intimating shareholders?
Majesco ltd today conducted board meeting without intimating shareholders, so is it okay? @dineshssairam


(Mayank Goel) #830

I heard or read somewhere in this forum that its allowed maybe for prefential shareholders…


(Dinesh Sairam) #831

I don’t think that’s possible. But perhaps a CA or a Company Secretary would know better.