Investing Basics - Feel free to ask the most basic questions

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.

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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

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.

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

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

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

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

Client Master of CDSL has a field named “Purchase Waiver”, which is marked “Yes” in a new demat account.

What is the meaning of “Purchase waiver”?

Thanks

Try this: https://www.cdslindia.com/downloads/Operating%20Instruction/Chapters-as-of-June-2017.pdf

Search for ‘Purchase Waiver’ or look at 2.4.7.

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Hello all .what is minimum average size of company in market cap terms in which 1.mutual funds 2.PMS can invest money.can we benefit from quality companies that they cannot invest due to limitations.

To find moat stocks based on return - is it better to use ROE or ROCE or ROIC? And why?

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Recently read a notice by a company where in it mentioned that shares unclaimed for last 7 years will be transferred to IEPF… (education fund)… i understand it must be meant for paper shares… but I was shocked to see the notice also applied to demat shares… so now my question is what constitutes an "unclaimed“ share? Is it the lack of activity in demat account for 7 years, if yes then its highly unfair… Govt cannot take my shares for lack of activity… please can somebody clarify

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The lack of activity in demat acccount for 7 years is not the criteria for transfer of shares to IEPF account. The shares will be transferred to IEPF when

  • company was not able to pay/credit dividend to the shareholder’s account and same has not been claimed for a consecutive period of 7 years

  • Company was not able to credit bonus/split shares, neither it has been claimed for 7 years

sorry for being naive, but why would a company not be able to transfer bonus shares to a demat account? only when its dormant right?
I just wanted to know the circumstances and scenarios in which company is unable to transfer bonus shares in a demat account ? . for example in case of a dividend transfer, company could claim there was no valid bank account linked to demat…

One of the many reasons due to which company wont be able to pay you bonus shares is when you don’t pay your annual demat account charges and your account becomes inactive/dormant, and it stay like that for 7 years, no one claims then it is construed for obvious reasons person doesn’t exist and shares goes to IEPF.

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What can be done with shares of company which has not been traded in or are de-listed from stock exchanges for years? Those shares just show up in the demat account for no reason.

How can one get rid of such shares?

https://www.screener.in/company/VEDL/consolidated/#cash-flow

It shows dividend paid Rs. 16812 crores for Mar 2018

However, if you check the P&L https://www.screener.in/company/VEDL/consolidated/#profit-loss

Dividend = 76% = 76% of 10,342 net profit = 7859.92

How come the mismatch?

I find exactly the same numbers in their annual report - so it’s not a screener mistake.

Check the effective date of the dividend even though dividend declared on 30/03/2017 it was paid in April 2017, so cash flow of 2018 covers this outflow including dividend paid in march 2018. Sum it up and add dividend distribution tax u will get the number.

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Thank you very much.

Question on different topic.

How are a company’s reserves (accumulated retained earnings) typically kept? I mean, do company’s keep it in a bank as fixed deposit? Or invest it etc? Do the cash and cash equivalents shown in the balance sheet include the company’s reserves? If the reserves are stored in an FD, then does the interest received from reserves shown in the interest income part of other income in the P & L statement?

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