one question
I was looking into a company named real strips and came across this number
The equity share capital is 5.9 crore
other equity= -21 crore
& then Total Equity= -15 crore
Why the total equity number is negative.
Isn’t it should always be positive as it is the money put down by shareholders?
Can you please describe what does equity share capital and other equity means?
@dineshssairam
“Other Equity” almost always refers to Accumulated P&L. So in this case, it means that the company has had huge Net Losses for some or many years in the past, which have gotten carried over to the Balance Sheet. The company also has some Debt outstanding. The Net Worth of the Company is, therefore, Negative Rs. 91 Crores.
“Equity Share Capital” is just the Face Value of the shares issued by the company i.e. Number of Shares Outstanding x Face Value of each Share. This also technically belongs to the Shareholders, but it is typically used only during extreme situations, like the liquidation of the company.
Some questions about Corporate Finance & Accounting for India.
In the US, one is allowed to use different methods of depreciation in the Accounting statement as compared to the tax returns. Let’s say a company buys a capital asset, in the Accounting Statement, it may use straight line depreciation, while in it’s Tax returns, it may depreciate the same asset using Accelerated Depreciation. Is such a practice allowed in India also?
In the US, Goodwill can neither be amortized in the accounting statement nor in the Tax returns. What is the case in India?
Like, intangibles of both types (in house created intangibles & acquired intangibles) - can these be amortized in the Accounting statement and/or Tax returns in India?[quote=“pandi.rao, post:1130, topic:1282”]
If the Cash flow from operations (CFO) is positive and the overall Free cash flow (FCF) is negative, should we consider this as a bad sign in terms of the financial health of the company or does CFO positive suffice the health of a company.
[/quote]
You cannot make any assumptions from a single year’s Cash Flow Statements. A manufacturing company may make a big Capex investment in one year or 2 consecutive years. So their FCF may be negative in those years. However, they may not need to make more investments for few more years after that, so then their FCF may be positive.
It’s better to look at Capex in a different way. First, is the company’s ROCE higher than it’s WACC. If yes, then any new investment it makes creates value even if it leads to negative FCF. If company’s ROCE is lower than it’s WACC, then additional investment may be destroying value even if it generates growth
Where can I find the complete list of preferential shares. I found it once but unable to get it now .please help thank you in advance
Right Dinesh,
Other Equity = Share Premium (Shares Outstanding x Premium paid by shareholders over face value) + accumulated P&L.
Hi Aswin,
Great question. I know it looks very basic but the answer is unknown to a large audience. In my formative years in stock market, i also dealt with this question but failed to get the answer from many veterans in the markets.
I will try this basis my understanding and experience (maybe i am partially right/completely wrong).
Cash markets involve instant settlement of transacted securities (shares exchanging hands in t+2 days), while F&O involves settlement of trade at a future expiry date of contract. Ideally the price of a security in cash and F&O market should be same, but if not, then converges at the expiry date of F&O contract. Generally when momentary trade occur in cash or F&O market, it leads to price differential for same security in both the markets. When such differentials happen, several informed market participants along with professional funds better known as ‘arbitrage funds’ avail arbitrage opportunity by selling the security in one (F&O/cash) market at a high price and buying the same at low price in other (cash/F&O) market.
When traders create shorts in the derivative markets by selling stock futures due to some negative development, this leads to decline in contract price in comparison to cash market price. This further creates opportunities for arbitrage funds to sell the security in cash market also swaying decrease in price in cash market.
Many times your hear that short covering lead to rally in the markets - this means when some intermediate positive news erupts in the markets, people who were already sitting on short positions, cover their positions by buying back the same contract which results in spike in price of Nifty and its constituents derivatives. Paraellely, action also begins in cash market taking Nifty quotes higher.
Hope this is helpful.
Hi Folks,
Is there any website to check FII holding on a particular day in a particular stock ?
Thanks in Advance!
Thank you for the detailed response.
It will be very helpful if u can explain how to short a stock or Nifty, preferably with a example it will be great learning.
Regards
MHS
@dineshssairam
Thanks for your reply.
Can you please share how you calculated the net worth of company.
Basically formula of net worth is Assets- Liability
So here Assets is =76 crore
And liability is =78 crore
So net worth is -2 crore
PLease let me know if i am doing it wrong
@dineshssairam @Likeadiamond
And one last question related to the topic is
If the Reserve and surplus is a Positive number, does it mean the company can use it as a cash to pay debt or other expenses.
Hi MHS,
Unfortunately, i don’t suggest people to subscribe to means of earning quick money because it moves out of ones pocket at same pace. As Warren Buffett says that derivatives are financial weapons of mass destruction, one should stay away from them as much possible.
Sorry, would recommend you to delve deeper into company documents, understand company’s business quality and take a call on investing into businesses with a long investment horizon. It is better to be a dumb than smart in stock markets.
Peter Lynch line: Dumb money is not so dumb and smart money is not so smart in markets.
Regards,
Hi Preetkaran,
Good to know that you are trying to understand the financial statements deeply.
‘Reserve and surplus’ are always clubbed with ‘liabilities’ because they represent shareholders money and need to be utilized wisely by the company to grow shareholders wealth.
Balance sheet is a set of accounting entries that are bifurcated into a 2-columns table - Assets and Liabilities (equity is shown on liability side). There is a dual entry for every accounting item - on assets and liability side.
Reserve and Surplus of Rs 108 cr. does not mean that company is sitting on Rs.108 cr. cash. It is only an accounting entry shown in the balance sheet on ‘reserve and surplus’ side. In real terms, this money is kept in the company in form of single or different type of assets (current and fixed assets). Therefore, Rs 108 cr. will have entries in parts on assets side as well (being invested across different type of assets).
Therefore, to know the actual cash in the business, you only need to focus on ‘cash’ line item under ‘current assets’ head in the balance sheet.
thank you sir
Great Explanation
Hello,
Is the increase in deposit insurance to 5 lakh already applicable or will it be applicable from next year.
Thanks
Hello,
Is there any source to get data of Nifty Index Constituents over last 20 years?
Thanks!
Is there a resource where I can download basic data about all listed companies for free? Currently I am specifically looking to download the total number of outstanding equity shares of all listed companies in NSE and BSE. Thanks
What will you do with such a data?
Hi everyone,
I am a retail investor based in India and I am looking at ways I can invest in the US sovereign bonds/ T- bills/ or at least convert my INR to USD and hold for some time.
Is there anyway that I can do any of the above through funds/ forex apps, etc.?
Any guidance towards the same is much appreciated.
Many thanks
Shreyas
Hi
Can you all guide me on how to calculate Capex from screener data. I am currently calculating as
(Change in NFA +CWIP) + Depreciation. The result does not tally with Fixed assets Purchased from screener
Related to this, I was going through this post from Marcellus
https://marcellus.in/newsletter/consistent-compounders/valuing-longevity-of-healthy-fundamentals/
where they talk about reinvestment of profits + high ROCE as a way to calculate the longevity. When they say re-investment here, are they simply calculating net retained earnings per year? Or is it the new capex (captured by Fixed Assets Purchased). Or is it something else?
