New Financial Terms

Behaviour finance

Sunk Cost Fallacy

recency Effect

Herd investing

Greed and fear factor

Evaluate Stocks

Warren Buffet is considered to be a genius when it comes to stock investment. He recommends an important thing to investors that the stock (company) you are thinking to buy or invest should have been around for at least ten years. There are a number of factors to be considered befere investing in stocks.

Techniques to Evaluate Stocks are as following
• Company History
• Dividend
• Market Cap
• Cash Flow
• Price Earnings Ratio (P/E)
• Return on Assets & Return on Equity (ROA & ROE)
• Financial Leverage
* EBIDTA

Amortization

The paying off of debt in regular installments over a period of time. The deduction of capital expenses over a specific period of time
Suppose Arshad Enterprise spent Rs 30 million on a piece of medical equipment and that the patent on the equipment lasts 15 years, this would mean that Rs 2million would be recorded each year as an amortization expense.While amortization and depreciation are often used interchangeably, technically this is an incorrect practice because amortization refers to intangible assets and depreciation refers to tangible assets.

EBITDA-Earnings Before Interest, Taxes, Depreciation and Amortization

EBITDA = revenues - expenses (excluding tax,interest, depriciation).EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant.EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions

Cash flow statement

Complementing the balance sheet and income statement, the cash flow statement, a mandatory part of a company's financial reports since 1987, records the amounts of cash and cash equivalents entering and leaving a company.
The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. Here you will learn how the CFS is structured and how to use it as part of your analysis of a company.
The structure of the CFS
The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit.

CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

Whats Repo Rate?

We keep hearing about repo rate.
repo rate is the rate at which rbi discount securities like treasury bill to the bank. To meet certain liquidity standards ,from time to time, banks sell their securities like treasury bills to rbi at a discount price called reporate ,for a short period of time like overnight or fort night . after specified time banks repurchase the bill at its face value. so high repo rate high loss for banks or hike in reporate absorbe liquidity from the market by less lending to the banks, which in turn tame inflation.