Importance of EPS | Difference Between EPS And CEPS

Earnings Per Share (EPS) different from the Cash Earnings Per Share (CEPS) in the similar manner as that of Cash Flow is different from the Net Income.


Basic Earnings Per Share is the function of Net Income of a Company. Whereas, CEPS is a function of the Cash Flow generated by a company. But, both are calculated on a per share basis.

Earnings Per Share /EPS – And How It Indicates the Company Performance

Company’s periodical profit is commonly distributed over the number of shares outstanding. So earnings per share is the calculation of the portion of profit that an each individual outstanding share gets allocated by the company.

Earnings Per Share looks at the Net Income of a Company and is calculated per Share.

The formula used to calculate is as follows.

EPS =  Net Income – Dividends Paid on Preferred Stock / The Number of Outstandingstanding Shares

The calculation will be more accurate, if we use a Weighted Average Number of Shares over the reported period, instead of shares outstanding at the end of the period. This is the most common phenomena of calculation followed by many Data Sources. This may simplify the calculation, but it’s not so accurate method of estimating the profit distribution.

Example

Let’s assume that, a company ABC has a Net Income of Rs. 10 Crores for the financial year 2016. And, the company paid out, Rs. 1 Cr. In the form of Preferred Dividends. If the company’s outstanding shares for the first 6 months was, Rs.100 million for the first 6 months and Rs.110 million for the next half. Then, the EPS is calculated as follows.

Weighted Average Number of Shares Outstanding = 100 (1/2) + 110 (1/2) = (50+55) = 105 M

And, EPS = 90000000/105000000 = 0.85

Significance of Earnings Per Share

  • Earnings per share is the best indicator of any company’s profitability in comparison with other stock valuation methods.
  • It is the major component, while calculating the Price –to-Earnings Ratio (P/E).

An Important Aspect to Remember

If we need to choose between two companies with the same EPS value, it’s good to choose a company with less equity /capital investment. The company is said to be more efficient, as it’s capable of generating the same income with comparatively less capital.

One must not analyze the company performance, by simply looking at a single financial ratio, which may lead to a manipulated calculation. So it’s always a good practice to look at, all the important aspects of a business, including its earnings growth potential and then come up with a single big aspect to decide upon.

Types of EPS

Basic EPS

There are companies with simplified capital structures. These companies don’t possess, any diluted-outstanding shares /securities like preferred shares, convertible debentures, warrants or equity options. While calculating the EPS, the weighted average number of shares is simply the number of shares outstanding over a period of time.

For example, company ABC has 9 million of shares outstanding, paid a preferred dividend of Rs. 1 million from the net profit of Rs. 10 million, then its basic EPS is,

Basic EPS = (10-1) /9 = 1

Diluted EPS

For companies with complex capital structure, it’s preferred to calculate, the diluted EPS.  Then only, we will arrive at the correct number of EPS, that reflects the actual profit distributed over the number of shares and for the period, concerned for calculation.

For example, consider a company ABC, which has 9 million of shares outstanding, similarly as that of the previous company, but also has a convertible preferred shares of 1 million, which can be converted into 3 million common shares. And, if the company paid, preferred dividend of Rs. 1 million from the net profit of Rs. 10 million, for the last quarter. Then it’s diluted EPS is calculated as follows.

Diluted EPS = (Net Profit) – (Preferred Dividend) /(No.of shares outstanding + Number of common shares converted from convertible preferred shares)

Diluted EPS = (10 – 1) /(9+3) =  9 /12 = 0.75

See the difference. That’s what the difference between the basic and diluted EPS actually is.

Cash Earnings Per Share

There are so many other factors that directly or indirectly affect the total cash flow, vis a vis the earnings per share of the company. Hence, the cash earnings per share, takes into account all those extra factors and gives out a different EPS figure.

Factors like, depreciation, amortization of goodwill and such other tangible and intangible factors have their own impact on the company’s present and future performance. Of course affects the cash flow in its usual sense. Hence, it’s always a good practice to consider a ‘Cash earnings per share’ to come out with more accurate numbers called CEPS. This is the number, that indirectly tells about the company’s past performance, vis a vis its future growth rate.

One more important factor that supports the accuracy of Cash EPS is that, the cash flow cannot be manipulated as easily as the net income.

Formula to calculate Cash Earnings Per Share /CEPS

We can calculate the CEPS in three different ways as follows.

Cash EPS = [Cash Flow (Operating)] /[Diluted Outstanding Shares] (or)

Cash EPS = EPS + Amortization of goodwill and other intangible items (or)

Cash EPS =  [Net Income + Depreciation] /Oustanding Shares.

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Forex Trade | How It Functions

Forex is nothing but the short form of ‘Foreign Exchange’. In olden days, people used to exchange their currency for the purpose of trade with foreign countries. And, sometimes, while travelling to another country for any reason. They used to exchange their home country currency with the currency of the country they are going to visit /stay, for the purpose of expenses over there.


 

But, the current situation is different. We can now exchange different currencies on the ‘Over- The-Counter market’, for the purpose of gains at the rate of speculating the currency rates against the dollar ($). All this trade takes place in the form exchange of one currency for  the other at an agreed exchange rate. Of course, on the ‘Over-The-Counter’ (OTC) market.

Best Ever In The History

In reality the world’s most traded market is nothing but the FOREX /Foreign Exchange Market. According to the Triennial Survey 2016, the Global Turnover of FX markets stood at $5.1 Trillion. Actually, this is down from $5.4 Trillion in April 2013.. This can be considered as the best ever turnover in the FX Market till now. This was happening due to the more aggressive and heightened activity by the traders. The trading currency was Japanese YEN against the background of Monetary Policy developments at that time.

Weekends And Holidays

Even though Forex Markets are considered to be ‘the all time markets’, the actual truth is something different. This market too has a Weekends and Holidays. One could not avail the full services offered by the Banks and Brokers on these days. Hence, one can see the low liquidity in the market. But, the market opens on a high note, in terms of trading activity by the traders.

No Physical Location

Forex Marke doesn’t have any physical location. Unlike most financial markets this over the counter market doesn’t have any Central Exchange too. But, trades take place at a 24 hours a day, through a global network of Banks, Businesses and Individuals. The trade continues due to fluctuation in the prices of different currencies against each other, offering multiple trading opportunities.

24 Hours A Day Market

Sunday evening to Friday night. 24 hours a day, Forex Markets are open. Of course the key aspect of their popularity.

Forex
TRADE ANYWHERE, ANYTIME AROUND THE GLOBE – FOREX

The trading follows the clock to move around the globe, active in different time zones and in different time frames. Starting from Wellington and New Zealand  on Monday morning, progresses towards Asia. Then spearheaded out of Tokyo and Singapore moves towards London to close in New York on Friday.

Price Fluctuations – Volatility

Currency values of different countries rise and fall against each other a lot. These fluctuations in prices are influenced by  Geo Socio, Economic and Political factors. Forex markets respond so quickly and aggressively to any of these factors, including News and Events. Thus, creating plenty of trading opportunities for the  traders. That’s what makes the Forex Trading so interesting and exciting.

Some of the Key- Factors that may influence the Forex prices are.

  • Monetary Policies
  • Currency Intervention
  • Political and Economic Stability
  • Natural Disasters

Leveraged Product

Forex Trading is required to deposit only a small percentage of the full value of the position. Hence, unlike any traditional trading, the potential loss and profit is higher in Forex trading, from an initial capital outlay.

Key Forex Terminology

Price Gapping

When the price jumps from one level to the other without any trading in between, the Price Gapping occurs. This usually happens in other Financial Markets. But, in Forex trading, there is no such price gapping, as traders can take positions whenever they want and also can exit. There are no time boundaries. And, the markets are open for ‘24 hours.

But, there are ‘Lull’ times. During these hours the volumes are extremely low, below their daily average. This usually creates a ‘Wide Spread’, which can be normalized once the trade resumes.

Base And Counter Currency

Forex trading panel shows, pair of currencies to choose between.

A Screen Shot of Forex Market Index

In the above Forex Index Screen, the first currency pair is EUR/USD. And, it’s shown that the Euro is less in value by 1.06138 points. Or in other words, US Dollar gained by the same number of points. The low of Euro (1.06100) and a High of Dollar (1.06149) is also shown.

Spread

Spread is nothing but, the difference between the BID and ASK price of the currency pairs.

For example, consider a pair GPB /USD. If the GBP is 1.1535 times the USD, the ASK will not be exactly 1.1535, but it will be a little bit more, say 1.1537. And, the BID will be lesser than 1.1535, say 1.1533. Here the spread is the difference between the ASK and BID prices.

Therefore Spread = (ASK – BID)

i.e (1.1537 – 1.1533) = 0.0004

And, this SPREAD goes to the Specialist who facilitates the trade.

Pips

Usually, the currency pairs are quoted to 5 decimal points (0.0001), except the Japanese Yen. The yen is displayed only to two decimal places /points (0.01). The price change is from the fourth decimal place.

A PIP stands for ‘Point in Percentage, measures the amount of change in the exchange rate for a currency pair. In order to provide extra digit of precision, when quoting exchange rates for certain currency pairs. This is called a fractional PIP, which is equivalent to 1/10th of a PIP.

Example: Let’s consider a trade in a pair USD/CAD. If the trade amount is $ 200,000. And, the trade closed at 1.0346, after gaining 10 pips. Calculate, the amount of profit gained in USD.

1 PIP = 0.0001

The total amount of trade in terms of CAD = (200,000) × (0.0001) = 20 CAD

No. of USD per PIP = (20) ÷ (1.0346) = 19.33

The total loss /profit for the trade = (10) × (19.33) = 193.30 USD profit

Hence PIP tells about the Percentage of Points Gained / Lost.

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Syncom Formulations | Why Do It’s Damping Down Investor Confidence

Company Name: Syncom Formulations (India) Limited.


Sector: Pharmaceutical

Current Market Price: 1.95

With market Capitalization of 155.35 Crores, this Mid Cap. Stock on BSE is a very attractive pharma pick due to its low price as well as the consistent year on year (YOY) profit growth rate. The recent ripples, it created in terms of trading volumes is really attention paying.

Falling price scenario really gives, a good opportunity to the bears to gain at the cost of bulls. Each and every time bulls try to take the price up to the next possible high level, bears try to pull it down to accumulate. They accumulate at the lowest possible price and sell at the highest. Hence Bearish Mode is best for Bears to gain at the loss of short-term bulls. Wooing bulls with targets is the strategy. Got it!

Syncom Formulations – An Overview

When I bought this scrip as a long-term holding at 2.15 levels in June last year, I thought it’s the last position that the price can move down. I never expected that it will come back again to my buy price. When it started to come back to 2.50 levels in September, the signal bearish signal was confirmed and I sold out all my holdings. That’s a different matter.Again on March 29th, I had little hope about its bullish startup. No need to say, what happened.

Technical Analysis

Technically, it has surpassed all the stages of its bullish trend. But, there are chances that, the Bulls may take it to up to certain level at their cost, but it may not sustain that position for a long while.

Here I would like to memorize the best saying of Dr. Alexander Elder, a professional trader based in New York city and the author of  ‘Come into My Trading Room’.

Each price represents a momentary consensus of value of all market participants – large commercial interests and small speculators, fundamental researchers, technicians, and gamblers- at the moment of transaction – Dr. Alexander Elder

The above saying of Alexander Elder, directly saying that the current market price of Syncom Formulations is the price decided by all the above said market participants. Whereas, fundamental Analysis only reveals the fundamentals of the company vis a vis its stock.

Fundamental Analysis

Company overall fundamentals are good, as described by many Credit rating Agencies. But, what is that financial factor, that’s driving the stock value to its previous lows is the factor to discover. Let’s start.

Promoter Stake: 41.22

We can say that it’s a good percentage and can’t count into that of low promoter stake category.

P/E: 13.43

Healthy. Good for short term traders to trade and gain.

Book Value: 1.39

Close to current Market Price. This is the price, the stock is running down to touch soon.

Dividend Yield: 1%

Good to say percentage. Nevertheless, the falling stock price may not hit back the long-term investors with the satisfaction, that a tremendous overall gain can give.

P/B: 1.44

At 1.2 levels, there is a chance to its push back. Whether it sustains or not depends on the company performance in the near future.

EPS: 0.14

Last but not the least, the EPS is the main factor in deciding upon the stock value. As long as the EPS is low, irrespective of profit growth rate the stock value falls to continue.

Earnings per share /EPS plays a vital role in stock analysis. EPS is considered as a main financial ratio and the symbol of the potential growth rate.

Strategy

Trade around, if you are able to track and follow the operator. Don’t invest further /SIP in as a long term investment. If possible sell half of the quantity and buy GTL Infra. Will trade around 100 by 2020.

All the above said analysis is based on the current Profit Growth Rate and Earnings Per Share calculations. If the company bags a huge order for any of its products /introduce a new valuable drug, my analysis may fail. I’m not responsible for your ‘ I Missed The Chance To Gain’ complaint.

Hope you people are better understood my perspective of analysis. Let me know your opinion. ‘Leave a Reply’ is waiting below for you to fill up. Jot down a few words.

Bye.

Happy Investing.

 

Financial Planning Advisory | Need And Analysis

A country like India. Where recent past has experienced a very fast economic growth rate and income level of the people has gone up. Where financial investment industry is wooing investors with different financial products. Investors are really confused to choose among? What is the best? Which category and sector? How much? The straightforward answer is the best Financial Advisory Services offered either by individuals / by institutions completely dedicated to offer such services.


 

If you are keen to know about the facts, how important it’s to avail a Financial Advisory Service, as the best solution for your happy financial status and as well as life ahead, read this article and comment!

What Is Financial Planning /Advisory

Without proper management of current resources, there will not be any surety about the fulfillment of life’s goals /achievements. People from different walks of life, with divergent income levels may have distinctive goals in life. But, the method of achieving those goals is the same. That’s “The proper management of available funds”. So, financial planning is simply defined as follows.

Financial Planning is the process of achieving life’s possible goals, through the proper management of one’s Personal Finances and Available Resources.

Why Do People Need Financial Planning Advisory Services

Numerous Financial Products. Their complexity. Irrespective of abundant available information, there are chances that people may go astray from, what they actually need to choose. That’s where, a financial planner actually plays an active role to articulate the necessary plan to go with. With his /her service, it’s easy to set up goals and draw the plan to reach those goals within the set time frame.

There are numerous factors that can be addressed easily with the help of Financial Planning advisory Service. By addressing these factors, one can not only can reach the life’s goals easily, but also can lead a happy tension free  life with no further financial obligatory tasks.  Because a well defined Financial Plan will have all the safety built-in -features, that will efficiently address, all the life’s goals and financial obligations.

Let’s have a look at all those factors, that a well defined Financial Plan can address.

Inflation

The best investment that can efficiently deal with inflation is equity. An alternate option is Equity Oriented Mutual Fund Schemes. A well defined Financial Plan includes Equity Component. The percentage varies among individuals. And, it depends on their risk taking capacity and the set goals.

Taxation

A good Financial Planner always makes sure that, all his /her clients take the benefits of Tax Reliefs, provided by the Government from time to time. It is always necessary to take all those advantages of Tax Benefits, to reduce the tax burden and unnecessary cash outflow.

Increase In Income Levels And Hence The Savings

India is one of the fastest developing countries of the world. In such countries, it’s common to see a high economic growth rate. Income levels of citizens of those countries normally rise at a fast pace.  Being the part of such fast growing economies, people with high income levels have high saving levels too. That too, unlike their counterparts, like developed European Countries, Asians, especially we Indians believe in savings. Believe that savings will ensure their future prosperity.

Financial Planning helps to park those savings in avenues, that drive them to meet their highest aspirations and goals.

Higher Aspirations And Goals

People with High income levels naturally thrive to have highest aspirations and goals in life. It’s quite natural. Whether it’s, buying a home in the up-market locality at an early age /dreaming a fantastic future higher education for the children /happy holiday vacation /the happy retirement. People due to higher income levels, would like to achieve as early as possible.

Without proper financial planning, it’s very difficult to meet all of their goals. Hence, a proper financial plan which considers all these aspirations is compulsory to develop.

Problems That Arise Due To Small Family Stucture

Due to the increasing number of small family structures, the importance of a well addressed financial planning  assumed the utmost importance to stay independent.

Olden days were different. Joint families with certain net worth were always supportive to all its members. Head of the family was acting the role of a fund manager. He /She was always there, to support their individual family members, in their bad financial situations.

So, there is a need to plan for such support, through a proper Financial Planning.

Borrowings

Attractive low interest rates proposed by different financial institutions, including banks, is making the people to borrow more. Sometimes more than their capacity. This anyhow, finally leads to the negative cash flow, which is a threat to anybody’s financial health, which indirectly impacts the physical health too.

One of the most important aspects, that needs to be explained to the borrowers is ‘Leveraging the low interest rates’. A good financial planning explains and avoids such negative cash flow problems successfully.

Confusion Due To Numerous Financial Products

Numerous and similar. Chances are great too misled by such attractive return promises. Need to distinguish from the individuals risk, age and need base point of view. One small financial mistake may lead to havoc.

A professional financial planner chooses the best for you, keeping in mind the aspirations as well as the risk profile.

Product Complexity

A recent revolution in the financial services industry came up with a number of complex financial products. Difficult to understand whether it matches the individual’s need or not. And, how the other market conditions impact those products indirectly, is another matter of big concern to understand.

Difficult to dig around all these matters, in these ‘No Time To The Self Crae’ days. Simple to transfer this workaround to the expert.

Lack Of Social Security

Simply to say – ‘Financial obligations are unlimited’. Irrespective of financial position, status in the society, age, caste, creed or gender, every individual has his /her particular need for finance. Whether it’s for the self or the dependants. Financial cushion /flow is must for everybody’s life.

Those days of ‘I will receive my pension, no tension after retirement’ have gone. Without proper financial planning for the self and the family, all the stages of life become a ship without a rudder.

One of the main objectives of Financial Planning is that of Social Security. No other way to ensure such a peaceful social security in terms of financial security.

Longer Life Expectancy

Thanks to the revolutionary developments in medical field. Life expectancy has been tremendously improved from an average 60 years to 80  years today. Without proper Medical Insurance Planning and Pension planning, and Retirement Planning, it’s very difficult to lead the post retirement life of 20 years.

Worse will be the condition if one quits the job earlier and that too without proper financial planning.

When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps

– By Confucius (An influential Chinese Philosopher, 551 B.C)