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Tuesday, October 7, 2008

Some terms which I often use

Some terms which I often use-Here"S what they mean folks:-

1)ADR:A negotiable receipt issued by an American bank for shares of stock in a foreign corporations. The underlying stock certificates are deposited in a bank – usually a foreign affiliate of the American bank – and the ADRs are traded in American markets instead. In many cases ADRs are the only means for Americans to own such shares, because India and many other countries do not allow stock certificates to leave the country. Even without this restriction, ADRs are useful because they eliminate some of the differences between American and foreign stocks, thereby facilitating trading. Infosys was the first Indian company to issue ADRs and this has been hugely successful. Many Indian corporations are expected to follow suit.

2)BadlA:Badla is the price payable by the buyer to carry over his speculative purchases to the next settlement. The system helps traders to carry forward businesses without taking deliveries of stocks purchased. More, the system helps build large volumes on the exchanges and impart liquidity in stocks. Permitted only in specified securities, badla involves carrying forward of a transaction from one settlement period to the next.

3)Corporate Restructuring:Changing the organization of a corporation, which usually but not always involves some restructuring of the capital. Restructuring is undertaken to make a company more profitable, more attractive to investors, more focussed, more protected against unwanted takeover, or for any number of other purposes. For example, a company may sell an unprofitable subsidiary at a loss and take a large tax write-off. This sale also reduces depreciation charges against the former subsidiary 's assets and enables the company to use the proceeds of the sale to buy its own stock. The number of shares of outstanding stock is thereby reduced, increasing earnings per share and causing the stock price to rise, as well as bolstering the position of the present management and giving it more protection against a possible unfriendly takeover.

4)Depreciation:For its operations, the company uses capital like plant and machinery. Depreciation is a cost that is charged for use of plants and building. It is not cash expenditure. Any assets be it a plant or a machinery?eventually wears off and needs to be replaced. Depreciation is an amount set aside every year towards replacement of the assets.

5)Enterprise value:At any instant of time tells us the value of the firm as the market sees it. It does not say if that is the fair value of the company nor does it concern itself with the balance sheet value of the company. It says if you were to buy over the company what would you need to pay today. You will need to buy all its equity at its market price. Also since you are buying over the company, you assume the responsibility for all its debt. And finally, the company has some cash and investments that you inherit, and your cash outflow stands reduced by that amount.
Enterprise Value=Market Capitalisation
+ Debt
- cash and investments.

6)Gross fixed assets:Example, to make soap, the company needs a plant. It also requires some land along with other infrastructure to set up an office. Other facilities like pipelines and waste disposal systems are also essential. These together constitute the gross fixed assets of the company.

7)Interest cover:Tells us how many times the company's profits cover its interest payments. After all, the profit before interest (PBIT) must at least adequately cover the interest obligations. To get this ratio, just divide PBIT by the interest. The number that you get shows how many times PBIT can meet the company's interest burden.

8)Market capitalisation:The market value of equity is the current market price of a share multiplied by the number of shares outstanding. This is nothing but market capitalisation.

9)Open Interest=The total number of outstanding or unliquidated contracts at the end of contracts at the end of the day. Open interest represents the total number of outstanding longs or shorts in the market, not the sum of both. Open interest has very definite seasonal tendencies that should be taken into consideration.
1.)Rising open interest in an uptrend is bullish.
2.)Declining open interest in an uptrend is bearish.
3.)Rising open interest in a downtrend is bearish.
4.)Declining open interest in a downtrend is bullish.

10)Relative Strength Index (RSI):A ratio line comparing two different entities. It is often used to correct the erratic movement seen in constructing a momentum line because of sharp changes in the values being dropped off.
The actual formula is calculated as follows:
RSI = 100 (100/(1+RS))
RS = Average of x days up closes/ Average of x days down closes.

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