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Company (definition) 1) An association of persons formed for the purpose of carrying on some legitimate business and which is registered

under the Companies Act, 1956 or any earlier Companies Act. 2) Types of Companies: The following are the various kinds of Companies: a. Private Company b. Public Company c. Government Company d. Holding and Subsidiary Companies e. Section 25 Company f. Foreign Company Private Company A company which, by its articles a) Restricts the rights to transfer its shares, if any; b) Limits the number of its members to fifty; c) Prohibits any invitation to the public to subscribe for any shares in, or debentures of the company. d) A Private Company should have a minimum paid-up capital of Rs. 1 lakh. Other Features of Private Company: It should have minimum of 2 members and maximum 50. It should have minimum of 2 Directors and there is no limit on maximum number of directors. It can start business immediately after incorporation. It need not obtain Commencement of Business Certificate.

Public Company A company which is not a private company. It should have a minimum paid-up capital of Rs. 5 Lakhs. Other Features: It should have minimum of 7 members and there is no limit on maximum number of members. It should have minimum of 3 directors and maximum of 12. However, with the prior permission of Central Government the company can increase the number of directors beyond 12. It must obtain Certificate of Commencement of Business within one year from the date of incorporation, without which it can not start its business or make any borrowings.

It must conduct Statutory General Meeting after 1 month from obtaining Commencement of Business certificate but not later than 6 months from obtaining Commencement of Business certificate.

Government Company means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined. Other Features: The auditor of the Company is appointed by Comptroller and Auditor General of India. The auditor should submit a copy of his report to Comptroller and Auditor General of India, who shall have right to comment there upon. The comment of CAG should be placed before annual general meeting of the company along with the auditor report.

Holding company means a Company which o o controls the composition of Board of directors of another company, or Holds more than 50% of the share capital of another company.

The company in which the holding company has the control or holdings is called Subsidiary company. A subsidiary of a company which is already a subsidiary of another company is also treated as subsidiary of the Holding company.

Section 25 Company (Non-profit Company) is a company which is formed for promoting commerce, art, science, religion, charity or any other useful object, intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members.

Such companies must take License from the Central Government.

Foreign Company: A company, which is incorporated outside India

having place of business in India is called as Foreign company.

Illegal Association Under the Companies Act, 1956, not more than 10 persons can come together for carrying on any banking business and not more than 20 persons can come together for carrying on any other business unless the association is registered under the Companies Act or any other Indian law. Any association which does not comply with the above norms is an illegal association. Therefore, a partnership of more 10 or 20 members, as the case may be, is an illegal association unless it is registered under the Companies Act or any other Indian law.

Incorporation and Certificate of Incorporation The process of registering a company with the Registrar of Companies (ROC) is called Incorporation The certificate of registration given under the hand of ROC is termed as Certificate of Incorporation. Certificate of Incorporation is conclusive evidence that all the requirements of the Companies Act in respect of registration and of matters precedent and incidental thereto have been complied with and that the association is a company duly registered under the Companies Act.

Certificate of Commencement of Business (Trading Certificate) Public companies should obtain certificate of commencement of business to commence business. Private companies are not required to obtain this certificate. The company must obtain this certificate within 1 year from the date of incorporation, Otherwise it will be declared as a defunct company and is liable to be wound up. The registrar will issue this certificate only when the following declarations have been filed: o o Prospectus or statement in lieu of prospectus. Declaration by the company that the directors have taken up and paid for their qualifying shares.

Declaration by the Secretary or Directors that all-legal requirements have been complied with.

Memorandum of Association 1) It is the fundamental document of the company, which declares the companys features and scope of activities. 2) It defines as well as confines the powers of the company. 3) It contains the following clauses: Name Clause Situation Clause Objects Clause Liability Clause Capital Clause Association or Subscription Clause

Articles of Association The Articles of association of a company are its bye-laws or rules and regulations that govern the management and internal affairs and conduct of its business. They set out the provisions for the manner in which the company is to be administered. In particular, they provide for matters like making of calls, forfeiture of shares, directors qualifications, appointment, powers and duties of auditors, procedure for transfer and transmission of shares and debentures etc.

Common Seal A company is an artificial person and does not have a physical presence. It acts through its Board of Directors for carrying out various activities and entering into various agreements. Such contracts must be entered under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal. Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.

Promoter/Founder Any individual, syndicate, association, partnership or a company which takes all the necessary steps to create and mould a company and set it going.

The promoter originates the scheme for the formation of the company, gets together the subscribers to the memorandum, gets memorandum and articles prepared, executed and registered, finds the bankers, brokers and legal advisors, locates the first directors.

Chairman Chairman is a person who has been designated as elected to preside over and conduct the proceedings of a meeting. The first Chairman of the company is generally named in the Articles. The Articles usually provide that the chairman of the Board of directors shall preside over the general meetings of the company in addition to presiding over Board meetings. However, the Board mat decide to elect a new Chairman every year at the Board meetings held immediately after the annual general meetings.

Managing Director: A Director who is entrusted with substantial powers of management of the company. He exercises his powers subject to the superintendence, control and direction of the Board of Directors.

Whole-time Director: A Director who is in whole time employment of the company is called wholetime director or an executive director. Note: A Public company or a private company which is a subsidiary of a public company must have a managing director or whole-time director, if its paid up capital is 5 crores or more.

Manager: An individual who, subject to the superintendence, control and directions of the Board of Directors, has the management of the whole or substantially the whole of affairs of the company. Director: Any person who is duly appointed by the company to control the companys business and to do all such acts and deeds authorized by its Articles of Association. Additional Director: A director appointed by the Board in between two annual General meetings.

Such additional directors shall hold office only up to the date of the next annual general meeting of the company.

Alternate Director: The Board of directors of a company may appoint an alternate director to act for a director ("the original director") during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. Such alternate director appointed shall not hold office for a period longer than that permissible to the original director in whose place he has been appointed He shall vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held.

Casual Director: If the office of any director appointed by the company in general meeting is vacated before his term of office due to resignation, removal, death etc.the vacancy should be filled by the Board of directors at the meeting of the Board. Any person so appointed shall hold office up to the unexpired term of the person vacated.

Nominal Director: As per the terms of the Loan agreement, if any director is appointed by the Bank or Financial Institution, to represent their interest, then he is termed as a Nominal director. Classification of directors Directors can be classified into two different categories. They are (I) (II) Executive, Non-executive and Independent Directors Inside and Outside Directors

Executive Director A director holding any executive position in the company is called as an executive director. Non-executive Director A director who does not hold any executive position in the company. Independent Director:

1) A non-executive director of the company who: apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director; is not related to promoters or persons occupying management positions at the board level or at one level below the board; has not been an executive of the company in the immediately preceding three financial years; is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: the statutory audit firm or the internal audit firm that is associated with the company, and the legal firm(s) and consulting firm(s) that have a material association with the company. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; and is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.

2) Independent directors are invited to join the board for their specialization and expertise so that they help in achieving a balance of knowledge, skills, attitudes and other directorial resources. Inside Director Any member of a company's board of directors who is either an employee or stakeholder in the company

Outside Director Any member of a company's board of directors who is not an employee or stakeholder in the company. Shareholder Any person who holds the shares of the company is called shareholder.

Member A shareholder whose name is entered in the register of members of the company is called member. Internal Auditor An internal auditor is typically an accountant who works within an organization He has a much wider focus than an external auditor. An internal auditor helps to identify risks and recommends ways to eliminate or mitigate those risks. The internal auditor is involved with Evaluating Emerging Technologies Analyzing Opportunities Such diversity gives internal auditors a broad perspective on the organization External Auditor or Statutory Auditor A company carries on business with capital provided by persons who are not in control of the use of the money supplied by them. They would, therefore, like to see that their investments are safe, are being used for intended purpose and the annual accounts of the company present a true and fair view of the state of affairs of the company. For this purpose, the members in their AGM appoint a duly qualified and independent person to check the accounts of the company. Such person appointed by the members is called Statutory Auditor and he must be a member of the Institute of Chartered Accountants of India.

Sole Selling Agent An agent who is appointed with the sole or exclusive right to sell the goods. He is not an employee of the company. Sole selling agent is appointed by entering into contract where the agent alone has a right to sell the goods.

Liquidator The commencement of the winding up of the company does not put an end to the existence of the company. Its assets are to be realized and distributed among the debenture holders, creditors, shareholders etc..

For this purpose, the court appoints one agent called Liquidator.

Foreign Direct Investment FDI is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. Overseas Direct Investment (ODI) Direct investment outside India means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity, signifying a long term interest (setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS)) in the overseas entity and thus does not include portfolio investment. Mutual fund It is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. The biggest advantage to mutual funds is diversification.

Affiliated Person Any persons who are officers, directors, or owns 10 % or greater of the voting shares, and in most cases, the aforementioned immediate family and confidants. These people are in a position to exercise control on the performance and conduct of a corporation. The terms "affiliated person" and "control person" or interchangeable.

Joint venture It is an entity formed between two or more parties to undertake economic activity together. There are no separate laws for joint ventures in India.

All the joint ventures in India require governmental approvals, if a foreign partner or an NRI or is involved. they share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only.

Portfolio Investment Scheme (PIS) It is a scheme of Reserve Bank of India defined in schedule 3 of Foreign Exchange Management Act 2000. As per the scheme, the NRIs can purchase and sell shares and convertible debentures of Indian Companies on a recognized stock exchange by routing such purchase/sale transactions through their account with Bank Branch. Under this scheme, NRIs/OCBs are permitted to acquire shares/debentures of Indian companies or units of domestic Mutual Funds through the stock exchange/s in India.

Gross Profit and Net Profit Gross profit definition: Calculated as sales minus all costs directly related to those sales. These costs can include manufacturing expenses, raw materials, labor, selling, marketing and other expenses. OR A company's total sales revenue minus its cost of goods sold. OR Gross profit or sales profit or gross operating profit is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments. In general, it is the profit shown on a transaction if one disregards the indirect costs. It is the revenue that remains once one deducts the costs that arise only from the generation of that revenue. For a retailer, gross profit is the shop takings less the cost of the goods sold. For a manufacturer, the direct costs are the costs of the materials and other consumables used to make the product. For example, the cost of electricity to operate a machine is often a direct cost while the cost of lighting the machine room is an overhead. Payroll costs may also be direct if the workforce is paid a unit cost per manufactured item. For this reason, service industries that sell their services by time units often treat the fee-earners' time cost as a direct cost. Gross profit is an important guide to profitability but many small businesses fail because they overlook the regular demand to meet the fixed costs of the business. The indirect costs are considered when calculating net income, another important guide to profitability.

Net profit definition: Often referred to as the bottom line, net profit is calculated by subtracting a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year). also called net income or net earnings. OR Amount of money earned after all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from the total revenue.

Price Earning Ratio A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market value per share -----------------------Earnings per share (EPS)

Gross Profit Ratio Gross profit divided by net sales. High ratios are favorable in that they indicate the business is earning a good return on the sale of its merchandise, although that may also invite competition. Gross profit ratio: Gross profit -------------Net Sales Return on Investments Measure of the earning power of assets. The ratio reveals the firm's profitability on its business operations and thus serves to measure management's effectiveness. It equals Net Income divided by average total assets; also called rate earned on total assets. Other versions of ROI exist, such as net income before interest and taxes divided by average total assets. Return on investment is a commonly used measure to evaluate divisional performance.

Return on Investment: Net Income before interest and tax ---------------------------------Average Total Assets

Return on Total assets A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. Return on total assets: EBIT ---------------Total Net Assets Here, EBIT= Net Income + Interest Expense + Taxes.

The greater a company's earnings in proportion to its assets (and the greater the coefficient from this calculation), the more effectively that company is said to be using its assets. To calculate ROTA, you must obtain the net income figure from a company's income statement, and then add back interest and/or taxes that were paid during the year. The resulting number will reveal the company's EBIT. The EBIT number should then be divided by the company's total net assets (total assets less depreciation and any allowances for bad debts) to reveal the earnings that company has generated for each dollar of assets on its books. Debt to Equity Ratio A measure of a company's financial leverage. Debt/equity ratio is equal to long-term debt divided by common shareholders' equity. Typically the data from the prior fiscal year is used in the calculation. Investing in a company with a higher debt/equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt. Debt to Equity Ratio: Long term debt ---------------Equity For example, if a company has long-term debt of $3,000 and shareholder's equity of $12,000, then the debt/equity ratio would be 3000 divided by 12000 = 0.25. It is important to realize that if the ratio is greater than 1, the majority of assets are financed through debt. If it is smaller than 1, assets are primarily financed through equity. When used to calculate a company's "financial leverage" the debt usually includes only the Long Term Debt (LTD).

Leverage Ratio 1. Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. 2. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ. EXAMPLE The most well known financial leverage ratio is the debt-to-equity ratio. For example, if a company has $10M in debt and $20M in equity, it has a debt-to-equity ratio of 0.5 ($10M/$20M). Other Ratios Liquidity Ratio:

Current Ratio: Current Assets --------------------Current Liabilities

Quick Ratio:

Current Assets-(Inventory + Prepaid Expenses) --------------------------------------------Current Liabilities

Cash Ratio: Cash + Marketable Securities -------------------------------Current Liabilities

Asset Turnover Ratios: Debtors Turnover Ratio: Credit Sales ------------------Average Debtors

Average collection period:

No. of Days in the year (365 days) --------------------------------Debtors Turnover Ratio

Inventory Turnover Ratio:

Cost of goods sold ------------------Average Inventory

Note: In case, cost of goods sold is not available then sales will be taken in the place of cost of goods sold. Inventory Period: 365 days ---------Inventory Turnover Creditors Turnover Ratio: Credit Purchases ----------------------Average Creditors Payments Period:

365 days ------------------------Creditors Turnover Ratio

Earnings Per Share EPS The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Calculated as:

Net Income-Dividends on Preference Shares -------------------------------------------Average Outstanding Equity Shares In the EPS calculation, it is more accurate to use a weighted-average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. Diluted EPS expands on the basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.

Diluted Earnings Per Share Diluted earnings per share is earnings per share that fully reflects the impact the firm's dilutive securities (eg, convertible bonds) may have on earnings per share. Diluted earnings per share is distinguished from basic earnings per share, both of which are computed by dividing net income by the weighted average number of outstanding shares. But only diluted earnings per share assumes the exercise of stock options and warrants, and the conversion of convertible bonds and preferred shares, in computing outstanding shares. Because diluted earnings per share entails spreading net income over more outstanding shares, the additional equity dilutes (ie, reduces) earnings on a per-share basis. Diluted earnings per share is thus the more conservative measure of earnings per share. The computation and presentation of diluted earnings per share is determined by Statement of Financial Accounting Standards 128. Diluted earnings per share ranks among accounting's most thorny issues, and the computation of diluted earnings per share can be extremely complex.

Dividend per share Dividend per share (DPS) is a simple and intuitive number. It is the amount of the dividend that shareholders have (or will) receive, over an year, for each share they own.

DPS = total dividends paid number of shares in issue Dividends are paid to holders of shares on the "record date" which will be announced beforehand by the company. More important from an investor's point of view is the ex-dividend date on, and after, which shares bought or sold on a stock exchange under normal terms will be sold without the dividend (so that the seller will get the dividend).

Companies may pay interim dividends during the year as well as a final dividend. These should all be added together to get the total annual amount in order to calculate DPS, dividend yield and other ratios. Special dividends may also be declared. They main significance of a dividend being declared a special dividend is that this is a signal to investors that it is not part of a company's normal dividend policy and therefore does not indicate that future similar dividends will be paid annually, as is otherwise the case. These should not be included in the DPS or when calculating dividend yield, but should be looked at separately. Most companies avoid dividend cuts unless their financial condition demands it or there has been some other change in the business or its capital structure. As a result of this, increases in the dividend are taken to be a sign that the management is confident that the new level can be maintained or improved on.

Equity Capital Equity capital is the amount of capital made available by the company's owner(s) to finance its assets at the end of the accounting year. OR Capital raised from owners. Debt capital Capital raised through the issuance of bonds. OR Debt capital is the capital that a business raises by taking out a loan. It is a loan made to a company that, which is normally repaid at some future date. Debt capital differs from equity or share capital because subscribers to debt capital do not become part owners of the business, but are merely creditors, and the suppliers of debt capital usually receive a contractually fixed annual percentage return on their loan, and this is known as the coupon rate. Debt capital ranks higher than equity capital for the repayment of annual returns. This means that legally, the interest on debt capital must be repaid in full before any dividends are paid to any suppliers of equity. A company that is highly geared has a high debt capital to equity capital ratio.

Book Value The value of an asset as it appears on a balance sheet, equal to cost minus accumulated depreciation. OR The monetary amount by which an asset is valued in business records, a figure not necessarily identical to the amount the asset could bring on the open market. Intrinsic Value 1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value. 2. For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the instrinsic value is given as zero.

Market Value The amount that a seller may expect to obtain for merchandise, services, or securities in the open market. OR In general: market price-the price at which buyers and sellers trade similar items in an open marketplace. In the absence of a market price, it is the estimated highest price a buyer would be warranted in paying and a seller justified in accepting, provided both parties were fully informed and acted intelligently and voluntarily. OR The current quoted price at which investors buy or sell a share of common stock or a bond at a given time.

Market Capitalization Value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share. Institutional investors often use market capitalization as one investment criterion, requiring, for example, that a company have a market capitalization of $100 million or more to qualify as an investment. Analysts look at market capitalization in relation to book, or accounting, value for an indication of how investors value a company's future prospects. OR Market capitalization represents the aggregate value of a company or stock. It is obtained by multiplying the number of shares outstanding by their current price per share. For example, if XYZ company has 15,000,000 shares outstanding and a share price of $20 per share then the market capitalization is 15,000,000 x $20 = $300,000,000. Generally, the U.S. market recognizes three market cap divisions: large cap (usually $5 billion and above), midcap (usually $1 billion to $5 billion), and small cap (usually less than $1 billion), although the cutoffs between the categories are not precise or fixed. In our example above, XYZ would be considered a small cap company. also called market cap. Buy Back of Shares A corporation's repurchase of stock or bonds it has issued. In the case of stocks, this reduces the number of shares outstanding, giving each remaining shareholder a larger percentage ownership of the company. This is usually considered a sign that the company's management is optimistic about the future and believes that the current share price is undervalued. Reasons for buybacks include putting unused cash to use, raising earnings per share, increasing internal control of the company, and obtaining stock for employee stock option plans or pension plans. When a company's shareholders vote to authorize a buyback, they aren't obliged to actually undertake the buyback. also called corporate repurchase. Employee Stock Options A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option. The idea behind stock options is to align incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so rewarding employees when the stock goes up ensures, in theory, that everyone is striving for the same goals. Critics point out, however, that there is a big difference between an option and the ownership of the underlying stock. If the stock goes down, the holder of an option would lose the opportunity for a bonus, but wouldn't

feel the same pain as the owner of the stock. This is especially true with employee stock options because they are often granted without any cash outlay from the employee.

Certificate of Deposit A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest. A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years. A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. Internal Rate of Return The Internal Rate of Return (IRR) is defined as the discount rate that gives a net present value (NPV) of zero. The NPV is calculated from an annualized cash flow by discounting all future amounts to the present. The length of time required to recover the cost of an investment. Cost of the project/Annual cash flows Average Rate of Return A measure of an investment's profitability. Total net earnings are divided by the number of years the investment was held, then by the investment's initial Acquisition Cost to derive the annual income rate. A drawback is that it does not consider the timing of earnings. Example: An investment's initial cost was Rs. 100. It paid a Rs. 2 annual dividend and was sold after five years for Rs.150. The total return is Rs.60 (Rs.10 in dividends plus Rs.50 in gain). The Rs.60 earned over five years represents Rs.12 per year, which is a 12% average rate of return. Net Present Value Net present value (NPV) is a standard method for the financial appraisal of long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met. By definition,

NPV = Present value of net cash flows. For its expression, see the formula section below. Formula

Each cash inflow/outflow is discounted back to its PV. Then they are summed. Therefore

t - the time of the cash flow n - the total time of the project r - the discount rate Ct - the net cash flow (the amount of cash) at time t. C0 - the capital outlay at the beginning of the investment time ( t = 0 )

Capital Budgeting The process of determining whether or not projects such as building a new plant or investing in a long-term venture are worthwhile. Also known as "investment appraisal". Process of making long-term planning decisions for capital investments. There are typically two types of investment decisions: (1) Selecting new facilities or expanding existing facilities. Examples include: (a) investments in long-term assets such as property, plant, and equipment; and (b) resource commitments in the form of new product development, market research, refunding of long-term debt, introduction of a computer, etc. (2) Replacing existing facilities with new facilities. Examples include replacing a manual bookkeeping system with a computerized system and replacing an inefficient lathe with one that is numerically controlled. As such, capital budgeting decisions are a key factor in the long-term profitability of a firm. To make wise investment decisions, managers need tools at their disposal that will guide them in comparing the benefits and costs of various investment alternatives. Many techniques used for evaluating investment proposals are widely available. They include payback, Accounting Rate of Return, Internal Rate of Return and the Net Present Value method

ARBITRAGE The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy. Profit making by buying a security, currency, or commodity at a low price in one market and simultaneously selling in another market at a higher price. Alternately, an arbitrageur borrows in one market and lends in another. The effect is to diminish price differences between markets. There are several forms of arbitrage transactions. In the cash market, an arbitrage deal usually involves money market instruments issued in one money center and invested in another at a higher rate. For example, a bank issues a three-month $100,000 certificate of deposit in the United States at 10% and buys a three-month Eurodollar CD bearing the same face value at 10.50%. Securities traders engage in risk arbitrage when their profit from a transaction is dependent on completion of a corporate merger, takeover, or recapitalization. In the futures market, arbitrage is sometimes called maturity arbitrage, for example, buying three-month delivery contracts and selling six-month contracts in a particular currency.

Conditions for arbitrage Arbitrage is possible when one of three conditions is met: 1. The same asset does not trade at the same price on all markets ("the law of one price"). 2. Two assets with identical cash flows do not trade at the same price. 3. An asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate (or, the asset does not have negligible costs of storage; as such, for example, this condition holds for grain but not for securities).

Commercial Paper Short-term, unsecured, discounted, and negotiable notes sold by one company to another in order to satisfy immediate cash needs. Commercial paper, type of short-term negotiable instrument, usually an unsecured promissory note, that calls for the payment of money at a specified date. Because it is not backed by collateral, commercial paper is usually issued by major firms whose credit-rating is so good that their notes are immediately accepted for trading. The notes are sold at a discount and mature in from three to six months. Commercial

paper is an important source of cash for the issuing firm; it supplements bank loans and is usually payable at a lower rate of interest than the prime discount rate. Strictly speaking, it includes only those instruments that are used in commerce in place of money, as distinguished from paper used in investment, personal, estate, speculative, and public transactions. In addition to promissory notes, commercial paper may include drafts, bills of exchange and checks, acceptances, bills of lading, warehouse receipts, orders for delivery of goods, and express orders.

ACCOUNTING-1 Depreciation In accounting, an expense recorded to allocate a tangible asset's cost over its useful life. Since it is a non-cash expense, it increases free cash flow while decreasing reported earnings. A decrease in the value of a particular currency relative to other currencies. Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company bought a piece of equipment for $1 million and expected it to have a useful life of 10 years, it would be depreciated over the 10 years. Every accounting year, the company would expense $100,000 (assuming straight line depreciation), and this would be matched with the money that the equipment helps to make each year.

Appreciation An increase in the value of an asset over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time. This term can be used to refer to an increase in any type of asset such as a stock, bond, currency or real estate. For example, the term capital appreciation refers to an increase in the value of financial assets such as stocks, which can occur for reasons such as improved financial performance of the company.

The term is also used in accounting when referring to an upward adjustment of the value of an asset held on a company's accounting books.

Depletion An accounting term describing the amortization of assets that can be physically reduced. Unlike depreciation and amortization, which mainly describe the deduction of expenses due to the aging of equipment and property, depletion is the actual physical reduction of natural resources by companies. For example, coal mines, oil fields and other natural resources are depleted on company accounting statements. This reduction in the quantity of resources is meant to assist in accurately identifying the value of the asset on the balance sheet.

Accrued Expenses An expense that is incurred, but not yet paid for, during a given accounting period. An accounting expense recognized in the books before it is paid for. It is a liability, ans is usually current. These expenses are typically periodic and documented on a company's balance sheet due to the high probability that they will be collected. Accrued expenses are the opposite of prepaid expenses. Firms will typically incur periodic expenses such as wages, interest and taxes. Even though they are to be paid at some future date, they are indicated on the firm's balance sheet from when the firm can reasonably expect their payment, until the time they are paid.

Income and expenditure statement A financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurred its revenues and expenses - due to both operating and nonoperating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. The income statement is the one of the three major financial statements, the other two being the balance sheet and the statement of cash flows.

The income statement is divided into two parts: the operating and nonoperating sections. The portion of the income statement that deals with operating items is interesting to investors and analysts alike, because this section discloses information about revenues and expenses that are a direct result of the regular business operations. For example, if a business creates sports equipment, then the operating items section would talk about the revenues and expenses involved with the production of sports equipment.

GAAP The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements.

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 (usually over the asset's life). More specifically, this method measures the consumption of the value of intangible assets, such as a patent or a copyright. 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.

Operating Income The amount of profit realized from a business's own operations, but excluding operating expenses (such as cost of goods sold) and depreciation from gross income.

Also referred to as "operating profit" or "recurring profit". Operating income would not include items such as investments in other firms, taxes or interest expenses. In addition, nonrecurring items such as cash paid for a lawsuit settlement are often not included.

Non operating Income Operating income is required to calculate operating margin, which describes a company's operating efficiency. NOI is often viewed as a good measure of company performance. Some believe this figure is less susceptible than other figures to manipulation by management.

Operating Expenditure A category of expenditure that a business incurs as a result of performing its normal business operations. One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly affecting the firm's ability to compete with its competitors. For example, the payment of employees' wages and funds allocated toward research and development are operating expenses. In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the bottom line purely by cutting expenses.

Accounting standards Principle that governs current accounting practice and that is used as a reference to determine the appropriate treatment of complex transactions. An older set of standards stating how particular types of transactions and other events should be reflected in financial statements. In the past, international accounting standards (IAS) were issued by the Board of the International Accounting Standards Committee (IASC).

Non performing Asset Any asset that is not effectively producing income. For example, an overdue loan would be considered non-performing

Sunk costs Sunk costs are unrecoverable past expenditures.

These should not normally be taken into account when determining whether to continue a project or abandon it, because they cannot be recovered either way. A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost."

Annual Report An annual publication that public corporations must provide to shareholders to describe their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos and an accompanying narrative, all of which chronicle the company's activities over the past year. The back part of the report contains detailed financial and operational information. A corporation's annual statement of financial operations, Annual reports include a balance sheet, income statement, auditor's report, and a description of the company's operations.

Capital reserve Contributions to the capital reserve account can be made from government subsidies, donated funds, or can be set aside from the firm's or municipality's regular revenue-generating operations. Once recorded on the reporting entity's balance sheet, these funds are only to be spent on the capital expenditure projects for which they were initially intended, excluding any unforeseen circumstances.

Capital Redemption Reserve where shares of a company are redeemed or purchased wholly out of the companys profits, or by a fresh issue the amount by which the companys issued share capital is diminished on cancellation of the shares shall be transferred to a reserve called the capital redemption reserve. The amount of capital redemption reserve shall be treated as paid up capital of the company.

Revaluation Reserve Used to revalue assets and liabilities to their fair value. An accounting term used when a company has to enter a line item on their balance sheet due to a revaluation performed on an asset.

This line item is used when the revaluation finds the current and probable future value of the asset is higher than the recorded historic cost of the same asset. A revaluation reserves fall under the category of supplementary capital, in that it does not reflect ordinary business results. Because of this revaluation, reserves typically are not counted as capital that can be leveraged for financial institution's, such as a bank's, contractual provisions.

Share Premium It is the difference between the higher price paid for a share of stock and the stocks par value when issued. Sinking Fund Sinking Fund is a sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid off. Usually the fund is administered by a trustee. A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.

Debenture A debenture is an instrument of debt executed by the company acknowledging its obligation to repay the sum at a specified rate and also carrying an interest. It is only one of the methods of raising the loan capital of the company. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital.

Like other types of bonds, debentures are documented in an indenture. Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any governmentissued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts.

Unsecured Loan A loan that is not backed by collateral. also called signature loan. A loan that is issued and supported only by the borrower's creditworthiness, rather than by some sort of collateral. Generally, a borrower must have a high credit rating to receive an unsecured loan. Commercial paper is an example of an unsecured loan.

Bank over Draft An instant extension of credit from a lending institution. If you have an overdraft account, your bank will cover checks which would otherwise bounce. As with any loan, you pay interest on the outstanding balance of an overdraft loan . An overdraft is a service provided by a bank which allows a customer to continue to write cheques or make other withdrawals from an account even when there is not enough money in the account to cover them. In effect, an overdraft is a form of credit, which attracts interest charges for as long as you are overdrawn. It is not always easy to predict how much an overdraft will cost you. Most overdrafts are charged at variable interest rates; that is, the rate charged goes up and down depending on what base interest rates are at the time.

Sundry Creditors Sundry Creditors refers to companies or individuals to which money is owed for goods and services supplied. Unclaimed Dividend The amount of Dividend which remains unpaid or unclaimed after thirty days from the date of declaration should be transferred to a special Dividend account, to be called Unpaid Dividend Account of the company.

Within seven days from the date of expiry of the thirty days period provided for payment of Dividend. Any amount in the Unpaid Dividend Account of the company which remains unclaimed and unpaid for a period of seven years from the date of transfer of such amount to the Unpaid Dividend Account should be transferred to the Investor Education and Protection Fund.

Consolidated Balance sheet A Financial statement that shows all the assets, liabilities, and operating accounts of a parent Company and its subsidiaries. The combined financial statements of a parent company and its subsidiaries. Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge the overall health of an entire group of companies as opposed to one company's stand alone position.

Extra Ordinary Items Gains or losses included in a company's financial statements, which are infrequent and unusual in nature. Such events as earthquakes, other natural disasters or the expropriation of assets by a government give rise to unpredictable financial consequences. These events are not expected to recur frequently or regularly and are beyond the control of a companys management.

General Reserve An account set aside by an individual or business to meet any unexpected costs that may arise in the future as well as the future costs of upkeep. In most cases, the fund is simply a savings account or another highly liquid asset, as it is impossible to predict when an unexpected cost may arise. However, if the fund is set up to meet the costs of scheduled upgrades, less liquid assets may be used.

Fixed Deposit A deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice.

Deposit a lump sum of money for a fixed period. Term deposits are an extremely safe investment and are therefore very appealing to conservative, low-risk investors. By having the money tied up you'll generally get a higher rate with a term deposit compared with a demand deposit.

Bills payable Trade obligations of person, such as a trade acceptance or Banker's Acceptance payable at maturity. An accounting entry that represents an entity's obligation to pay off a shortterm debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities. Accounts payable are debts that must be paid off within a given period of time in order to avoid default. For example, at the corporate level, AP refers to short-term debt payments to suppliers and banks Payables are not limited to corporations. At the household level, people are also subject to bill payment for goods or services provided to them by creditors. For example, the phone company, the gas company and the cable company are types of creditors. Each one of these creditors provide a service first and then bills the customer after the fact. The payable is essentially a short-term IOU from a customer to the creditor.

Accounting Concept Basic assumptions or conditions upon which the science of Accounting is based. Accrued Income Accrued income means income earned but the date of receipt not yet come.

Stock Exchange The marketplace for trading Shares, Debentures, government bonds and other fixed-interest securities that are listed in concerned stock exchanges. Securities and Exchange Board of India (SEBI), a regulatory authority supervises the activities of all the stock exchanges in India. The trading platform provided by stock exchanges is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens available with the stock exchange trading members or the internet based trading facility provided by the trading members of concerned stock exchanges.

BSE NSE The National Stock Exchange (NSE) is India's largest financial market. Established in 1992, the NSE has developed into a sophisticated, electronic market, which ranks third in the world for transacted volume. The NSE conducts transactions in the wholesale debt, equity and derivative markets. Based in Mumbai, India, the National Stock Exchange is a leader in market technology. The Bombay Stock Exchange (BSE) is a national wide stock exchange. More than 6,000 Indian companies are listed with this stock exchange, and have a significant trading volume. The BSE SENSEX (also known as the BSE 30) is a value-weighted index composed of top thirty scrips, with the base April 1979 = 100.

Initial Public Offer Corporates may raise capital in the primary market by way of an initial public offer, rights issue, bonus issue or private placement. An Initial Public Offer (IPO) is selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities.

The sale of securities can be either through book building or through normal public issue. In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issue securities in the following manner: 1. 100% of the net offer to the public through the book building route. 2. 75% of the net offer to the public through the book building process and 25% through the fixed price portion.

Difference between shares offered through book building and offer of shares through normal public issue: Features Fixed Price process Pricing Book Building process

Price at which the securities are Price at which securities will be offered / offered / allotted is known in allotted is not known in advance to the advance to the investor. investor. Only an indicative price range is known.

Demand Demand for the securities Demand for the securities offered can be offered is known only after the known everyday as the book is built. closure of the issue Payment Payment if made at the time of Payment only after allocation. subscription wherein refund is given after allocation. In an IPO, the issuer obtains the assistance of Merchant Banker and underwriters, which helps in determining what type of security to issue (common or preferred), best offering price and time to bring it to market. IPO is also referred to as a "public offering".

Merchant Banker means any person who is registered with SEBI as such and who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management. Book Building The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or

equal to the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

The Process: The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'. The Issuer specifies the number of securities to be issued and the price band for orders. The Minimum price at which we can quote is called Floor Price.

The Maximum price at which we can quote is called Cap Price or Cut-Off Price. The spread between the floor and the cap of the price band shall not be more than 20%. Bids can be revised by the bidder before the issue closes.

The Issuer also appoints syndicate members with whom orders can be placed by the investors. Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called 'bidding' and is similar to open auction. A Book should remain open for a minimum of 3 days. On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include Price Aggression Investor quality Earliness of bids, etc. The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities. Generally, the numbers of shares are fixed; the issue size gets frozen based on the price per share discovered through the book building process. Allocation of securities is made to the successful bidders.

Reverse Book Building (Delisting of shares) The Reverse Book Building is a mechanism provided for capturing the sell orders on online basis from the share holders through respective Book Running Lead Managers (BRLMs) which can be used by companies intending to delist its shares through buy back process.

In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from the share holders. The Reverse Book Building is basically a process used for efficient price discovery. It is a mechanism where, during the period for which the Reverse Book Building is open, offers are collected from the share holders at various prices, which are above or equal to the floor price. The buy back price is determined after the offer closing date

Business process for delisting through book building is as follows: The acquirer shall appoint designated Book Running Lead Manager (BRLM) for accepting offers from the share holders. Orders for the offer shall be placed by the share holders only through the designated trading members, duly approved by the Exchange. The designated trading members shall ensure that the security / share holders deposit the securities offered with the trading members prior to placement of an order. The offer shall be open for 'n' number of days.

The BRLM shall intimate the final acceptance price and provide the valid accepted order file to the National Securities Clearing Corporation Limited (A wholly owned subsidiary of NSE carrying out clearing and responsible for settlement operations.) Book Runner The book runner builds an order book, that is, collates the bids from various investors, which shows the demand for the shares of the company at various prices. Green Shoe Option Green Shoe option means an option of allocating shares in excess of the shares included in the public issue. Its main purpose is to stabilize post listing price of the newly issued shares. A greenshoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges. Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditions warrant such action. However, some issuers prefer not to include greenshoe options in their underwriting agreements under certain circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originally sought.

The term is derived from the fact that the Green Shoe Company was the first to issue this type of option. It is being introduced in the Indian Capital Market in the initial public offerings using book building method. It is expected to arrest the speculative forces. The green shoe option is available only in case of IPO and not for subsequent issues.

SENSEX It is an Index which reflects the price movement of shares of top 30 companies listed in Bombay Stock Exchange. One can identify the booms and busts of the Indian stock market through SENSEX. SENSEX is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100.


S&P CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market movement of the Indian markets. It comprises of some of the largest and most liquid stocks traded on the NSE. The index has been co-branded by Standard & Poors (S&P). Nifty is the barometer of the Indian markets. It is an Index which reflects the price movement of shares of top 50 companies listed in National Stock Exchange. It is maintained by India Index Services & Products Ltd. (IISL), which is a joint venture between NSE and CRISIL.

Blue Chip Companies These are also termed as gilt-edged companies, a company with a large market capitalization, stable earnings, consistent dividend record, and reputation as a reliable investment. Blue chip stock is a stock that sells at a high price because of public confidence in its long record of steady earnings.

Primary Market The primary market provides the channel for sale of new securities Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. The proceeds of the sale go to issuer.

Secondary Market Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. The proceeds of the sale go to the selling investor.

Circuit Limits The upper and lower price limits set by the Exchange from time to time as a price containment measure beyond which trading will not be allowed till the prices are normal or limits reset.This is not applicable for stocks that are part of Derivatives segment. Broker A registered member of the stock exchange to act as intermediary between stock exchange and the investor. They charge a fee or commission for executing buy and sell orders submitted by an investor. A broker's duties may include: determining market values, Advising the scrips for purchase etc.

Stop Order An order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order. Also referred to as a "stop" and/or "stop-loss order".

Stops are not a 100% guarantee of getting the desired entry/exit points. For instance, if a stock gaps down then the trader's stop order will be triggered (or filled) at a price significantly lower than expected. Traders who use technical analysis will place stop orders below major moving averages, trendlines, swing highs, swing lows or other key support or resistance levels.

Day Trade Trades are entered and closed out within the same day. A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day.

Clearing House An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all futures and options contracts - as a buyer to every clearing member seller and a seller to every clearing member buyer. Each futures exchange has its own clearing house. All members of an exchange are required to clear their trades through the clearing house at the end of each trading session and to deposit with the clearing house a sum of money (based on clearinghouse margin requirements) sufficient to cover the member's debit balance. For example, if a member broker reports to the clearing house at the end of the day total purchase of 100,000 bushels of May wheat and total sales of 50,000 bushels of May wheat, he would be net long 50,000 bushels of May wheat. Assuming that this is the broker's only position in futures and that the clearing house margin is six cents per bushel, this would mean the broker would be required to have $3,000 on deposit with the clearing house. Because all members are required to clear their trades through the clearing house and must maintain sufficient funds to cover their debit balances, the clearing house is responsible to all members for the fulfillment of the contracts.

Clearing Member A member of an exchange clearinghouse, responsible for executing client trades and other financial commitments of customers. Bad delivery

The status of a security traded on an exchange when it does not meet a set of requirements for being in proper form for transfer of title to the buyer. Bull Market A prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as a result of an economic recovery, an economic boom, or investor psychology. Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. Of course, no bull market can last forever, and sooner or later a bear market (in which prices fall) will come. It's tough if not impossible to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation can sometimes play a large (if not dominant) role in the markets. The extreme on the high end is a stock-market bubble, and on the low end a crash.


An investor who thinks the market, a specific security or an industry will rise. Bulls are optimistic investors who are presently predicting good things for the market, and are attempting to profit from this upward movement.

Bear Market A market condition in which the prices of securities are falling or are expected to fall. A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly.


An investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.

Insider Trading Trading by insiders or illegal trading by insiders who trade based on insider information. Insider means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably

expected to have access to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information. Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by corporate insiders such as officers, key employees, directors, or holders of more than ten percent of the firm's shares.

Price Sensitive Information means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company. Explanation the following shall be deemed to be price sensitive information: (i) Periodical financial results of the company; (ii) Intended declaration of dividends (both interim and final); (iii) Issue of securities or buy-back of securities; (iv) Any major expansion plans or execution of new projects; (v) Amalgamation, mergers or takeovers; (vi) Disposal of the whole or substantial part of the undertaking; and (vii) Significant changes in policies, plans or operations of the company; Public Float The portion of a company's outstanding shares that is in the hands of public investors, as opposed to company officers, directors, or controlling-interest investors. Also known as "free float". For example, a company may have 10 million outstanding shares. Out of that 4 millions are in the hands of promoters, directors, officers and controlling investors. So, the remaining 6 million shares which are freely tradable in the stock market are called free float.

Record date The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

Book Closure Closing the transfer books of the company for certain time period, to find out the holders who are entitled to corporate actions. It is mandatory for the listed companies to close their books at least once in a year preferably before the Annual General Meeting. Dividend

Share of the companys profit distributed among the members of the company. The dividend can be declared out of the following three sources: current profits reserves created out of profits or credit balance in the profit and loss account brought forward. Out of the moneys provided by the Government, if any. Final dividend is declared in the annual general meeting of the company after adopting the balance sheet and profit and loss account. However, a part of profits may be distributed before the accounts are finally passed and declaration of dividend is sanctioned in the AGM. Such dividend is called as Interim dividend. Derivatives Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Its value is determined by fluctuations in the underlying asset. Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are generally used to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using American dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into euros. Advanced investors sometimes purchase or sell derivatives to manage the risk associated with the underlying security, to protect against fluctuations in value, or to profit from periods of inactivity or decline. These techniques can be quite complicated and quite risky.

Futures In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The settlement price, normally, converges towards the futures price on the delivery date. A futures contract gives the holder the obligation to buy or sell, which differs from an options contract, which gives the holder the right, but not the obligation. The essential features of a Futures contract are:

Contract between two parties through an exchange. Exchange is the legal counterparty to both parties. Price decided today. Quantity decided today (quantities have to be in standard denominations specified by the exchange). Quality decided today (quality should be as per the specifications decided by the exchange). Tick size (i.e. the minimum amount by which the price quoted can change) is decided by the exchange. Delivery will take place sometime in future (expiry date is specified by the exchange). Margins are payable by both the parties to the exchange. In some cases, the price limits (or circuit filters) can be decided by the exchange.

Options A financial derivative which represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (excercise date). Each option has a buyer, called the holder, and a seller, known as the writer. While a buyer of an option pays the premium and buys the right to exercise his option, the writer of an option is the one who receives the option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him.

Put and call Options Put option An option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date); here also called put. Call Option An option contract that gives the holder the right to buy a certain quantity (usually 100 shares) of an underlying security from the writer of the option, at a specified price (the strike price) up to a specified date (the expiration date). also called call.

Arbitrage in Stock Markets The simultaneous purchase and sale of an asset in order to profit from a difference in the price. This usually takes place on different exchanges or marketplaces. The ideal version is riskless arbitrage, a risk-free transaction consisting of purchasing an asset at one price and simultaneously selling that same asset at a higher price, generating a profit on the difference. Here's an example of arbitrage: Say a domestic stock also trades on a foreign exchange in another country, where it hasn't adjusted for the constantly changing exchange rate. A trader purchases the stock where it is undervalued and short sells the stock where it is overvalued, thus profiting from the difference. Arbitrage is recommended for experienced investors only.

ADR (American Depository Receipts) A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.

GDR (Global Depository Receipts) A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros. A GDR is very similar to an American Depositary Receipt. GDRs may be used in public or private markets inside or outside US.

OTCEI (Over-The-Counter Exchange of India): It is an exchange, which provides the facility of listing to those companies, which havent met the eligibility criteria to list in National or Regional stock exchanges. In order to get listed in OTCEI, the company has to meet the following criteria: A company should have a minimum paid-up capital of Rs. 30 lakhs and the minimum offer to the public should be 25% of the issued capital or Rs. 20 lakhs worth of shares in face value, whichever is higher. SEBI Guidelines on Disclosure and Investor Protection will be applicable to all OTCEI issues.

Every company that intends to get listed has to be sponsored by a merchant banker of the Exchange. The Sponsor of the issue must arrange for Market Makers to give Buy & Sell quotes in the securities for an initial period of 18 months NASDAQ NASDAQ is the largest U.S. electronic stock market. A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-thecounter stocks and some listed stocks. Unlike the Amex and the NYSE, the Nasdaq (once an acronym for the National Association of securities Dealers Automated Quotation system) does not have a physical trading floor that brings together buyers and sellers. Instead, all trading on the Nasdaq exchange is done over a network of computers and telephones. Also, the Nasdaq does not employ market specialists to buy unfilled orders like the NYSE does. It is home to companies that are leaders across all areas of business, including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks.

NYSE (New York Stock Exchange) The oldest and largest stock exchange in the U.S., located on Wall Street in New York City. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. Unlike some of the newer exchanges, the NYSE still uses a large trading floor in order to conduct its transactions. It is here that the representatives of buyers and sellers, professionals known as brokers, meet and shout out prices at one another in order to strike a deal. This is called the open outcry system and it usually produces fair market pricing. In order to facilitate the exchange of stocks, the NYSE employs individuals called specialists who are assigned to manage the buying and selling of specific stocks and to buy those stocks when no one else will. Of the exchanges, the NYSE has the most stringent set of requirements in place for the companies whose stocks it lists, and even meeting these requirements is not a guarantee that the NYSE will list the company.

Ticker Symbol

An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors use to place trade orders. Every listed security has a unique ticker symbol, facilitating the vast array of trade orders that flow through the financial markets every day. Symbols with four letters are used for Nasdaq stocks. Symbols with five letters are used for Nasdaq stocks other than single issues of common stock. Symbols with five letters ending in X are used for mutual funds.

Commodities Market An exchange for buying and selling commodities for future delivery. An entity, usually an incorporated non-profit association that determines and enforces rules and procedures for the trading of commodities and related investments, such as commodity futures. Commodities exchange also refers to the physical center where trading takes place. Modern commodity markets trade many types of investment vehicles, and are often utilized by various investors from commodity producers to investment speculators.

MCX (Multi Commodity Exchange) MCX is an independent and de-mutulised multi commodity exchange. It has permanent recognition from the Government of India for facilitating online trading, clearing and settlement operations for commodities futures market across the country. Today, MCX features amongst the world's top three bullion exchanges and top four energy exchanges. MCX offers a wide spectrum of opportunities to a large cross section of participants including producers/ processors, traders, corporate, regional trading centre, importers, exporters, co-operatives and industry associations amongst others. Headquartered in the financial capital of India, Mumbai, MCX is led by an expert management team with deep domain knowledge of the commodities futures market. The exchange has also affected large deliveries in domestic commodities, signifying the efficiency of price discovery. Being a nation-wide commodity exchange having state-of-the-art infrastructure, offering multiple commodities for trading with wide reach and penetration, MCX is well placed to tap the vast potential poised by the commodities market.

NCDEX (National Commodity & Derivatives Exchange Limited)

NCDEX is a nation-level, technology driven de-mutualised on-line commodity exchange with an independent Board of Directors and professional management - both not having any vested interest in commodity markets. It is committed to provide a world-class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism and transparency. NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to various laws of the land like the Forward Contracts (Regulation) Act, Companies Act, Stamp Act, Contract Act and various other legislations. NCDEX currently facilitates trading of 57 commodities including agriculture, energy and metals.

Mutual Funds A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. The biggest advantage to mutual funds is diversification. New Fund Offer While on one hand more and more companies are coming out with IPOs or additional offers, mutual funds too have not lagged behind in coming out with New Fund Offers, NFO, with increasing regularity. And predictably enough, these issues have generated huge interest amongst the investors and raised thousands of crore. Primary issues in an equity market are a different subject matter in itself. However, as regards the NFOs from Mutual Funds, there is a need to critically examine the same. Mutual Fund NFOs are nothing but commencement of a new scheme. They should not be confused with equity IPO and hence one should not expect a huge listing gain akin to one.

Open and Closed-End Funds Open-End Fund An Open-End Fund is a mutual fund which can issue and redeem shares at any time. An investor can purchase shares in such funds directly from the mutual fund company, or through a brokerage house. There may be a percentage charge levied on purchase or sale of shares--in this case, the fund is a "load fund"; if there are no such charges levied, the fund is "no-load.

A fund with a fixed number of shares outstanding, and one which does not redeem shares the way a typical mutual fund does.

Closed-End Fund Closed-end funds behave more like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). They are also called as closed-end investment company or publicly-traded fund.

Portfolio Management The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk vs. performance. The process of managing the assets of a mutual fund, including choosing and monitoring appropriate investments and allocating funds accordingly. Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and numerous other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.

Investment Banking An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. Investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals.

Cash Markets Market for short-term debt securities, such as banker's acceptances, commercial paper, repos, negotiable certificates of deposit, and Treasury Bills with a maturity of one year or less and often 30 days or less. Money market securities are generally very safe investments which return a relatively low interest rate that is most appropriate for temporary cash storage or short-term time horizons. Bid and ask spreads are relatively small due to the large size and high liquidity of the market.

Meeting: Any gathering or assembly, getting together of a number of persons for transacting any lawful business. However, the company meetings must be convened and held in perfect compliance with the applicable provisions of the Companies Act, 1956. Types of meetings: Company meetings can be classified as under 1) Board Meetings 2) Members Meetings Annual general meeting Statutory general meeting Extraordinary general meeting

Board Meeting 1)A company subject to the provisions of the Companies Act, Articles of Association of the company and any resolution passed in the general meeting, has to act though its Board of Directors. 2)The Board can act only by taking decisions collectively through passing resolutions in the meetings of the Board. Statutory General Meeting (SGM): 1) It is a meeting of the members held only once during the lifetime of the company. 2) Generally, it is the first general meeting of the company. 3) The main purpose of this meeting is to enable the members to know at an early date the financial position and prospects of the company and also to provide them an opportunity of discussion on various matters arising out of the promotion and formation of the company. 4) Every public company limited by shares must hold a statutory general meeting, within a period of not less than one month but not more than six months from the date of obtaining commencement of business certificate. Annual General Meeting (AGM) A public or private, having share capital or not, limited or unlimited must hold an annual meeting of the body of the members to consider and adopt the annual accounts of the company.

1. The first annual general meeting of the company must be held within 18 months from the date of its incorporation. 1. The subsequent annual general meetings must be held within the earliest dates of the following: There must be one AGM in one calendar year. Meeting must be held not later than 6 months from the close of the financial year The gap between two AGMs should not exceed 15 months.

However, ROC can grant extension of time, for special reasons, upto a maximum period of 3 months. 3. Every AGM shall be called to be held during business hours, on a day that is not a public holiday. 4. It shall be held either at the registered office of the company or at any place within the city, town or village in which the registered office of the company is situate. Extra-ordinary General meeting(EGM) All general meetings other than the annual general meetings shall be called as extraordinary general meetings. An EGM is convened to transact some special or urgent business that may arise in between two AGMs. Meetings related aspects Notice of the meetings: It is a written notice which sufficiently conveys the person, entitled to receive it, information enabling the person to attend the meeting and to take part in its deliberations. The notice must specify date, time and place of the meeting. It must state the nature of business to be transacted. I.e., a complete agenda of the meeting should be forwarded with or as a part of the notice. The notice of the general meeting must be circulated at least 21 days before the date of meeting to the following persons: 1. 2. 3. 4. Every member of the company. Legal representatives of a deceased member Official receiver/assignee The auditors of the company.

The Company Law has not specified any form of notice or period of notice to the Board Meetings. Usually, a weeks notice is considered sufficient.

Annual Report: 1) It is a company's annual statement of financial operations. 2) Annual reports include a balance sheet, profit and loss account along with the schedules, cash flow statement, auditor's report, directors report, and a description of the company's operations and management analysis about the future opportunities and threats of the company. 3) Annual reports are formal financial statements that are published yearly and sent to company stockholders and various other interested parties. 4) The reports assess the year's operations and discuss the companies' view of the upcoming year and the companies' place and prospects in their industries. Directors Report: The Board of directors must prepare one report called directors report and that shall be attached to every balance sheet laid before a company in general meeting. The directors report contains the following details: 1. The state of the company's affairs; 2. The amounts, if any which it proposes to carry to any reserves; 3. The amount, if any, which it recommends should be paid by way of dividend; 4. Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of the report; 5. The conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed Proxy A person, being a representative of a shareholder at a meeting of company who may be described as his agent to carry out which the shareholder has himself decided upon. The appointment of a proxy must be made by a written instrument signed by the appointer or his duly authorized attorney. The instrument of proxy must be deposited with the company at least forty-eight hours before the meeting. Quorum 1) The minimum number of members who must be present at a meeting. 2) The main purpose of having a quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members.

3) The quorum for the general meetings is five members personally present in case of a public company and two members personally present in case of a private company. 4) The quorum for the Board meetings is two or one-third of the total directors, which ever is high. 5) The articles can provide for a larger quorum, but it cannot provide for a smaller quorum. Ordinary resolution: 1) When a motion is passed by simple majority of the members voting at a general meeting, it is said to have been passed by an ordinary resolution. 2) In other words, votes cast in favor of the resolution are more than the votes cast against the resolution. Special resolution: The votes cast in favour of the resolution are not less than 3 times the number of votes, which are casted against the resolution. Unanimous resolution: 1) All the questions arising at any board meeting shall be decided by a majority of votes. 2) However, in the following cases, the Board needs to have unanimity of opinion and all the votes must cast in favour of the resolution. They are; 1. Appointment of Managing Director who is already managing director of another company. 2. Appointment of Manager who is already manager of another company. 3. Granting of inter-corporate loans, investments and guarantees.

Postal Ballot: 1) In meetings, only the opinion of the persons attended in the meetings is taken into consideration for passing the resolutions. But the opinions of the shareholders, who are absent, are not taken into consideration. 2) To overcome this situation, the SEBI has made it compulsory to take the opinion of all the shareholders for certain notified matters, by passing the resolutions through postal ballot method.

3) In this method, the company circulates the postal ballot paper along with the draft resolution and explanatory statement to all the shareholders, and requests them to send their assent or dissent and requests them to return the papers within 30 days. 4) The notice shall include a postage pre-paid envelope for facilitating the communication of the assent or dissent of the shareholder to the resolution within the said period. 5) If a resolution is assented to by a requisite majority of the shareholders by means of postal ballot, then it shall be deemed to have been duly passed. 6) This method is aimed at improving the participation of members. Corporate governance 1) It is the set of processes, customs, policies and laws affecting the way a corporation is directed, administered or controlled. 2) Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. 3) The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. 4) Corporate governance is a multi-faceted subject. An important theme of corporate governance deals with issues of accountability and fiduciary duty, essentially advocating the implementation of guidelines and mechanisms to ensure good behaviour and protect shareholders. 5) Another key focus is the economic efficiency view, through which the corporate governance system should aim to optimize economic results, with a strong emphasis on shareholders welfare. Dividend 1) Share of the companys profit distributed among the members of the company is called Dividend. 2) The dividend can be declared out of the following three sources: a. Current profits. b. Reserves created out of profits or credit balance in the profit and loss account brought forward. c. Out of the moneys provided by the Government, if any. 3) Final dividend is declared in the annual general meeting of the company after adopting the balance sheet and profit and loss account.

4) However, a part of profits may be distributed before the accounts are finally passed and declaration of dividend is sanctioned in the AGM. Such dividend is called as Interim dividend. Venture capital 1) It is capital typically provided by outside investors for financing of new, growing or struggling businesses. 2) Venture capital investments generally are high risk investments but offer the potential for above average returns and/or a percentage of ownership of the company. 3) A venture capitalist (VC) is a person who makes such investments. 4) A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Winding up 1) It is the process whereby the life of a company is ended and its property is administered for the benefit of its creditors and members. 2) An administrator, called a liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their respective rights. 3) At the end of the winding up the company will have no assets or liabilities and it will therefore be a simply formal step for it to be dissolved and thereby the legal personality of a company is to be brought to an end. Prospectus Any document, notice, circular or advertisement inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares or debentures of a company. Abridged Prospectus: Every application form issued by the issuer must accompany a memorandum containing salient features of prospectus and this memorandum is called abridged prospectus. Red Herring Prospectus A prospectus which is circulated to the public after filing the same to SEBI, but which does not have complete particulars on the price or quantum of the securities offered is called Red Herring Prospectus. Shelf Prospectus

1) A prospectus issued by any financial institution or bank for one or more issues of the securities or class of securities specified in that prospectus. 2) In order to reduce the burden of issuing prospectus every time, the concept of shelf prospectus has come. 3) For subsequent offerings, information memorandum updating the information under various heads will have to be filed. 4) The entire set comprising of shelf prospectus and the information memorandum shall constitute the prospectus and have to be circulated to the general public. 5) It is valid for a period of one year from the date of opening of the first offering of the shelf prospectus. Information Memorandum A document circulated prior to the filing of a prospectus by which a demand for the securities proposed to be issued by a company is elicited and the price and the terms of issue for such securities are assessed. Statement in Lieu of Prospectus: Every public company needs to file statement lieu of prospectus at least 3 days before the allotment of shares and debentures in the following cases: Where it does not issue a prospectus, because it feels that it can raise enough capital without inviting the subscription from the public, or Where it issues a prospectus but has not proceeded to allot any of the shares offered to the public for subscription, because the issue has been a failure and the minimum subscription has not been received.

Initial Public Offer Unlisted companies offering its shares to the general public which are going to be listed in the stock exchanges is called Initial Public Offer. Rights Issue 1) Where any public company limited by shares decides to issue further shares at any time after the expiration of two years from the date of incorporation of the company or after one year from the date of the first allotment of shares, which ever is earlier, must offer the shares to the existing equity holders in proportion to their shareholdings. 2) Such shares are known as Rights Shares and the right of the members to be so offered is called the Right of pre-emption.

Bonus issue 1) A company may, if its Articles so provide, capitalize profits by issuing fully paid up shares to the members thereby transferring the sums capitalized from the profit and loss account or reserves account to the share capital. 2) Such shares are known as bonus shares and are issued to the existing members of the company free of charge. Preferential allotment/Private placement: 1) A private placement is an issue of shares or of convertible securities by a company to a selected group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. 2) This is a faster way for a company to raise equity capital. 3) A private placement of shares or of convertible securities by a listed company is generally known by name of preferential allotment. 4) A listed company going for preferential allotment has to comply with the requirements contained in Chapter XIII of SEBI (DIP) Guidelines 5) The company needs to pass special resolution to issue this kind of shares. Employees Stock Option Scheme (ESOPS) 1) The option given to the whole-time directors, officers or employees of a company which given such directors, officers or employees the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price. 2) The company needs to pass special resolution for such kind of issues. Sweat Equity 1) Shares issued by the company to its employees or directors at a discount 2) For consideration other than cash 3) For providing know-how or making available intellectual property rights or value additions. 4) The company needs to pass special resolution to issue this kind of shares. Warrants 1) A warrant confers an option to the investor to buy a specified number of equity shares at a specified price over a specified period of time. 2) The warrant holder has to surrender the warrant and pay some cash known as the exercise price of the warrant to purchase the shares.

3) SEBI guidelines require the investors to pay 10% of price payable, at the time of allotment of warrants and limits the conversion period to 18 months. 4) If the investor is not willing to exercise the option, the company can forfeit the initial amount paid by the investors. American Depository Receipt: 1) A negotiable certificate issued by a U.S. bank representing a specific number of shares of a foreign stock traded on a U.S. stock exchange. 2) ADRs make it easier for Americans to invest in foreign companies, due to the widespread availability of dollar-denominated price information, lower transaction costs, and timely dividend distributions. Global Depository Receipts: 1) A negotiable certificate issued by a foreign bank representing a specific number of shares of an issuer company. 2) This certificate gets traded in foreign currency in foreign stock exchanges. Debentures: A document acknowledging a loan made to a company and providing for the payment of interest on the sum borrowed until the debenture is redeemed. Fixed deposits: Any amount of deposit received by the company or any amount borrowed by the company. However, it does not include the following: Any amount received from the Central or state governments, the payment of which is guaranteed by them. Any amount of loan received from any banking company including cooperative banks. Any amount of loan received from any notified financial institutions. Any amount received from any other company. Any amount received from an employee of the company by way of security deposit.

Dematerialization (Demat): 1) Dematerialization is a process by which the physical certificates of an investor are taken back by the company and actually destroyed 2) An equivalent number of securities are credited in the depository account of that investor. 3) This is done at the request of the investor.

Depository 1) A depository is an organization where the securities of a shareholder are held in the electronic form at the request of the shareholder through the medium of a depository participant. 2) A depository can be compared to a bank. If an investor wants to utilize the service offered by depository, the investor has to open an account with the depository through depository participant. 3) The main objective of the depository is to minimize the paper work involved with the ownership, trading and transfer of securities. 4) Presently, there are two depositories exists in India. They are: a) The National Securities Depository Limited (NSDL), and b) Central Depository Services (India) Limited (CDSL). Depository Participant 5) Depository Participant acts as an agent of the investor in depository system. 6) He will maintain the securities account balances of the investors and intimate the status of holdings from time to time. Rematerialisation: Rematerialisation is a process by which the shares held in electronic form (demat mode) are converted into physical certificates at the option of the shareholder. Transfer One of the most important features of a company is that its shares are transferable. Transfer is a process, in which the ownership in shares of a person is transferred to the other person at the will of the shareholder. Transmission It is a process, in which shares are transferred by the legal action. Transmission takes place in the following instances: When the registered shareholder dies, When the shareholder becomes insolvent, and Where the shareholder is a company and it goes into liquidation.

By back of shares A company can purchase its own shares, provided the following conditions are satisfied:

1. Buy-back is authorized by the Articles of association. 2. A special resolution has been passed in the general meeting of the company. 3. The company can purchase its securities out of: Its free reserves, The Securities Premium Account, The proceeds of any shares and securities other than proceeds of the same kind of securities issued earlier. 4. The debt-equity ratio should not exceed 2:1 ratio. 5. The amount utilized for the buy back should be less than 25% of the total paid up capital and free reserves of the company. Reduction of share capital 1)The Company can reduce its share capital by the following methods; 1. by reducing or extinguishing the liability of members for uncalled Capital. 2. by paying off or returning capital which is in excess of the needs of the company. 3. pay off paid-up capital on the understanding that it may be called up again. 4. write off or cancel capital which has been lost or is not represented by available assets. 2)For reducing the capital the company needs to pass special resolution and should obtain confirmation from the concerned High Court. Mergers And Acquisitions A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another with no new company being formed. An example of a major merger is the merging of JDS Fitel Inc and Uniphase Corp in 1999 to form JDS Uniphase. An example of a major acquisition is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services Inc.

Disinvestment The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture". A reduction in capital expenditure, or the decision of a company not to replenish depleted capital goods.

A company or government organization will divest an asset or subsidiary as a strategic move for the company, planning to put the proceeds from the divestiture to better use that garners a higher return on investment. A company will likely not replace capital goods or continue to invest in certain assets unless it feels it is receiving a return that justifies the investment. If there is a better place to invest, they may deplete certain capital goods and invest in other more profitable assets. Alternatively a company may have to divest unwillingly if it needs cash to sustain operations.

Private Placement Rising of capital via private rather than public placement. The result is the sale of securities to a relatively small number of investors. Investors involved in private placements are usually large banks, mutual funds, insurance companies, and pension funds. Since a private placement is offered to a few, select individuals, the placement does not have to be registered with the Securities and Exchange Commission. In many cases detailed financial information is not disclosed and a the need for a prospectus is waived. Finally since the placements are private rather than public, the average investor is only made aware of the placement usually after it has occurred.

Credit Rating An assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. Credit is important since individuals and corporations with poor credit will have difficulty finding financing, and will most likely have to pay more due to the risk of default.

lock in period / IPO Lock Up A contractual caveat referring to a period of time after a company has initially gone public, usually between 90 to 180 days. During these initial days of trading, company insiders or those holding majority stakes in the company are forbidden to sell any of their shares.

Once the lock-up period ends, most trading restrictions are removed. Also referred to as "lock-up period". An IPO lock-up is done so that the market is not flooded with too much supply of a company's stock too quickly. Typically, only 20% of the outstanding shares are initially offered to the investing public. A single large shareholder trying to unload all of his holdings in the first week of trading could send the stock downward, to the detriment of all shareholders. There is also empirical evidence suggesting that after the end of the lock-up period, stock prices experience a permanent drop of about 1-3%.

Convertible Bonds And Non Convertible Bonds A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder. Issuing convertible bonds is one way for a company to minimize negative investor interpretation of Its corporate actions. For example, if an already public company chooses to issue stock, the market usually interprets this as a sign that the company's share price is somewhat overvalued. To avoid this negative impression, the company may choose to issue convertible bonds, which bondholders will likely convert to equity anyway should the company continue to do well. From the investor's perspective, a convertible bond has a value-added component built into it; it is essentially a bond with a stock option hidden inside. Thus, it tends to offer a lower rate of return in exchange for the value of the option to trade the bond into stock. A bond that can not be converted into a predetermined amount of the company's equity at certain times during its life.

Bankruptcy The state of a person or firm unable to repay debts.

If the bankrupt entity is a firm, the ownership of the firm's assets is transferred from the stockholders to the bondholders. Shareholders are the last people to get paid if a company goes bankrupt. Secure creditors always get first grabs at the proceeds from liquidation.

Funds From Operations

A figure used by real estate investment trusts (REITS) to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis. A measure of the profitability of a real estate investment trust (REIT). FFO begins with net income as derived using Generally Accepted Accounting Principles (GAAP). To that it adds depreciation deductions and deductions for amortization of deferred charges, which are non cash deductions. FFO does not consider extraordinary items and gains (losses) on the sale of real estate. See example at Cash Available for Distribution.

Importance: Securities analysts generally believe that the net income from income-producing real estate is not properly measured by GAAP, because GAAP requires depreciation deductions and the amortization of deferred charges. These items do not require a cash outflow. These analysts have embraced FFO as a more appropriate measure of a REIT's performance.

Cash Equivalent Items

Investment securities that are short-term have high credit quality and are highly liquid. Also referred to as "cash and equivalents". Cash equivalents are one of the three main asset classes, along with stocks and bonds. These securities have a low-risk, low-return profile. Cash equivalents include U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper and other money market instruments. Examples cash-in-hand, Cash-in-lieu of Commodities Cash-surrender value, Cash-on-cash return.

Net Asset Value (NAV)

In the context of mutual funds, the total value of the fund's portfolio less liabilities. The NAV is usually calculated on a daily basis. In terms of corporate valuations, the book value of assets less liabilities. The NAV is usually below the market price because the current value of the fund's assets are higher than the historical financial statements used in the NAV calculation.

Venture Capital Financing for new businesses. In other words, money provided by investors to startup firms and small businesses with perceived, long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for aboveaverage returns. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot raise funds through a debt issue. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

Working Capital A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Working Capital=Current Assets Current Liabilities

Positive working capital means that the company is able to pay off its shortterm liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable, inventory). Also known as "net working capital".

If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing, and as a result, its accounts receivables number continues to get smaller and smaller.Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations.

Cash Conversion Cycle A metric that expresses the length of time, in days, a company takes in order to convert resource inputs into actual cash flows. It attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sale to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. Also known as "cash cycle".

Calculated as:

Where: DIO represents days DSO represents days DPO represents days payable outstanding

inventory sales

outstanding outstanding

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the







So the cash conversion cycle measures the time between outlay of cash and cash recovery. This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line.


Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.

Ex Dividend The trading of shares when a declared dividend belongs to the seller rather than the buyer. Cum Dividend

When a buyer of a security is entitled to receive a dividend that has been declared, but not paid. In the U.S., dividends face double taxation - the amount comes from after-tax income the company generated and the recipients pay taxes on them. As of 2003, cash dividends are taxed at a maximum rate of 15% as long as the stock has been held for at least 60 out of the 120 days beginning 60 days prior to the ex-dividend date.

If you have held the stock for a period of less than this the dividend will be taxed at your regular income level. High-growth companies rarely offer dividends because all their profits are reinvested to help sustain higher-than-average growth.

Break Even point In general, the point at which gains equal losses. In options, the market price that a stock must reach for option buyers to avoid a loss if they exercise. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid. Also referred to as a "breakeven". For businesses, reaching the break-even point is the first major step towards profitability. The break even point is also the point on a chart indicating the time when something has broken even, and is a general term for not having gained or lost something in a process.

Break Even Analysis The break even point for a product is the point where total revenue received equals total costs associated with the sale of the product (TR=TC). A break even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break-Even Analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business.

Fixed Costs Fixed costs are un-expired assets or expenses whose total does not change in proportion to the activity of a business, within the relevant time period or scale of production. For example, a retailer must pay rent and utility bills irrespective of sales volumes. Fixed costs include, but are not limited to, overheads (rent, insurance, and such) and can include direct costs such as payroll (particularly salaries).

Capital assets will generally be considered part of fixed costs, but treated differently. Unit fixed costs decline with volume, following a rectangular hyperbola as the inverse of the volume of production.

Variable Costs Variable costs by contrast change in relation to the activity of a business such as sales or production volume. In the example of the retailer, variable costs may primarily be composed of inventory (goods purchased for sale), and the cost of goods is therefore almost entirely variable. In manufacturing, direct material costs are an example of a variable cost.

Hypothecation And Mortgage When a person pledges a mortgage as collateral for a loan, it refers to the right that a banker has to liquidate goods if you fail to service a loan. The term also applies to securities in a margin account used as collateral for money loaned from a brokerage. A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front. Mortgages are also known as liens against property, or claims on property. In a residential mortgage, a homebuyer pledges his or her house to the bank. The bank has a claim on the house should the homebuyer default on paying his or her mortgage. In the case of a foreclosure, the bank may evict the home's tenants and sell the house, using the income from the sale to clear the mortgage debt.

Arm's length price The price at which a willing buyer and a willing unrelated seller would freely agree to transact or a trade between related parties that is conducted as if they were unrelated, so that there is no conflict of interest in transaction. Cost of capital A company has several of finance as follows

Equity shares, Preference shares, Debt and Retained earnings. Each one of these has a specific cost involved which is called as Cost Of Capital . The required return necessary to make a capital budgeting project - such as building a new factory worthwhile. Cost of capital would include the cost of debt and the cost of equity. The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if it invested its money someplace else with similar risk.

Capital Expenditure Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operation. These expenditures can include everything from repairing a roof to building a brand new factory. The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom and utilities. In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.

Cash Budget An estimation of the cash inflows and outflows for a business. A cash budget is extremely important, especially for small businesses because it allows a company to determine how much credit can be extended to customers before they begin to have liquidity problems.

Close Market An market in which there is a narrow spread between bid and offer prices, due to a high volume of trading and many competing market makers. Close end and Open end fund A type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time (in the initial public offering) which then typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market. Legally known as a "closed-end company." A type of mutual fund where there are no restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds also buy back shares when investors wish to sell. Most of the mutual funds available in the marketplace are open-end funds. Open-end funds are generally managed actively and are priced according to their net asset value (NAV). Open-end funds are wide-ranging. Some Openend funds are more conservative and provide consistent returns with low risk, and some are more aggressive in seeking to make capital gains through constant trading.

Collateral Security Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default. Collateral is a form of security to the lender in case the borrower fails to pay back the loan. For example, if you get a mortgage, your collateral would be your house. In margin trading, the securities in your account act as collateral in the case of a margin call.

Consortium A group made up of two or more individuals, companies or governments that work together toward achieving a chosen objective. Each entity within the consortium is only responsible to the group in respect to the obligations that are set out in the consortium's contract. Therefore, every entity that is under the consortium remains independent in his or her normal business operations and has no say over another member's operations that are not related to the consortium.

Consortiums are often used within the non-profit sector, specifically with educational institutions. They often pool resources such as libraries and professors and share them among the members of the group. Several groups of North American colleges and universities operate under consortiums. For-profit consortiums also exist, but they are less prevalent. One of the most famous for-profit consortiums is the airline manufacturer Airbus.

Lease Finance An agreement in which one party gains a long-term rental agreement, and the other party receives a form of secured long-term debt. They are two parties in lease i,e lessor and lessee The lessee gains a long-term contract for the use of an asset, and the lessor is assured of regular payments for a specified number of years.

Penny stocks Penny stocks, over-the-counter bulletin board (OTCBB) or pink sheet securities are low-priced, speculative stocks that are very risky and are not suitable for every investor. They are issued by companies with a short or erratic history of revenues and earnings. Penny stocks sell for less than $5 per share and their companies have under $2 million in net tangible assets. Therefore, the companies do not qualify to trade on the New York Stock Exchange or on the Nasdaq.

Income stocks Income stocks are those stocks that pay higher-than-average dividends over a sustained period. These above average dividends tend to be paid by large, established companies with stable earnings. Utilities and telephone company stocks are often classified as income stocks.

Prepaid Income: Includes rents or interest received in advance and compensation for services to be performed later. Prepaid income is generally included in taxable income in the year received. Provisions for taxation: An amount on the P & I statement that estimates a company's total income tax liability for the year. Proposed Dividend: Proposed items such as Dividends proposed, which means amounts the business promises to pay in the coming year. Provision for contingencies, taxation, insurance, bad and doubtful debts and depreciation: Provision is an amount of an expense that should be recognized currently when the exact amount of the expense is uncertain. Goodwill: An intangible asset which provides a competitive advantage, such as a strong brand, reputation, or high employee morale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the acquired company. Patents: A patent for an invention is the grant of a property right to the inventor, issued by the Patent and Trademark Office. The term of a new patent is 20 years from the date on which the application for the patent was filed in the United States or, in special cases, from the date an earlier related application was filed, subject to the payment of maintenance fees. US patent grants are effective only within the US, US territories, and US possessions. Trade marks: A trademark is a word, name, symbol or device which is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others. Intellectual Property: Property that can be protected under federal law, including copyrightable works, ideas, discoveries, and inventions. Such property would include novels, sound recordings, a new type of mousetrap, or a cure for a disease.

Investments in Government or Trust Securities: Is the amount invested in securities held/offered by GOVT. ex. National Savings Certificates, investment in infrastructure bonds, Govt. schemes and bonds, or any other securities offered by Govt. Investments in shares: The amount invested in shares held/offered by the company. Mutual Funds: A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. Debentures or bonds: Unsecured debt backed only by the integrity of the borrower, not by collateral, and documented by an agreement called an indenture. One example is an unsecured bond.

Investments in the Capital of partnership firms: Investment either as partner or as an investor for returns without acting as a partner for the firm. Interest accrued on Investments: Interest accrued on investments between the last interest payment date and the date of purchase. The account is carried as an asset until the first interest payment date after the date of purchase. Bills receivable: The unpaid promissory notes or acceptances held by an individual or firm. Prepaid Expenses: An asset that arises on a balance sheet because of the payment of something in advance (prepayment). Services for the payment will be received in the near future. Outstanding Income: It is the term which denotes that the income has been earned but the cash has not been received against the same. Preliminary Expenses: Professional and other expenses involved in establishing a business. Also called formation expenses.

Interest paid out of capital: Amount paid out of capital in respect of interest. Loss in Profit and Loss account: Excess of expenses over the income during a financial year. Amortization of employee compensation cost: Writing off the amount paid for employees as compensation paid under voluntary retirement scheme, or any other amount paid by kind or cash. Amortization: Is a reduction in the value of an asset over the period owned; also the liquidation of debt through payments to a creditor or to a Sinking Fund.

Amortization: Is the process of decreasing or accounting for an amount over a period of time. Contribution to provident and other funds:

Provident fund Is a fund that pays benefits to the company employees who are fund members upon the termination of their employment. Contributions paid into the fund by both the employees and the employers are invested in accordance with the pre-determined condition of amount and risks. The contribution made by the employee is allowed as deduction from Gross total income; and the contributions made by employers for the benefit of employees is allowed as an expense under Income Tax. In Indian Law; It is covered by The Employees Provident Funds and Miscellaneous Provisions Act It extends to the whole of India except the State of Jammu and Kashmir and is applicable to: every factory engaged in any industry specified in Schedule 1 in which 20 or more persons are employed; every other establishment employing 20 or more persons or class of such establishments which the Central Govt. may notify; any other establishment so notified by the Central Government even if employing less than 20 persons

Bad Debt Write-off: Customer's account that is removed from the books. Advances written off: Writing off the advance received from the books. Prepaid income: Prepaid income is the income accounted for before the corresponding goods or services have been delivered or carried out. See also accruals Outstanding expenses: Certain expenses may have been incurred during the financial year, but will only be paid in the next financial year. Examples of such expenses is where accounts or invoices have been received for accounting fees, advertising, rent, rates and taxes, water and electricity, etc., which is applicable to the financial year but which is not yet paid at the end of the financial year. The expense account must be adjusted so that the expense account represents the expenses for the full financial year or 12 consecutive months (accounting periods or reporting periods). The amount by which the expense account is outstanding will increase the amount of the expense at the end of the financial year. At the end of the financial year a liability is created Accrued or outstanding expenses because the amount of the expense is consumed or used but not yet paid. It is owed to the party who has supplied the expense item, which is already used up in the financial year.

Miscellaneous Expense: Incidental expense of a business, not classified as manufacturing, selling, or general and administrative expenses. It is presented on an income statement after operating income. Miscellaneous expenses are immaterial. A more precise designation or separate accounting for them results in a cost greater than the benefit received.

Dividends from non-trade investments: Dividends are the proportion of a companys profit that it pays to its shareholders, usually declared as a dividend per share or Dividends are payments made by a company to its shareholders. Dividends from non-trade investments are the amount/income/earnings which are not purposely invested for trading, but the returns are received on account of sale or an act performed by the enterprise. Some of examples: Exchange difference, net. Profit on sale of investments, Profit on sale of fixed assets, net., Miscellaneous income, Net gain on sale of current investments (non trade), and Interest on Fixed Deposits.. etc.

Incentive on investments: In general investments are made by the enterprise/individuals for returns/profits, the amount paid in excess of expected returns or the agreed amount is generally treated as Incentive on investments, this may include returns in cash/kind or additions to investment.

Royalty: A payment made for the use of property, especially a patent, copyrighted work, franchise, or natural resource. Foreign Exchange difference: Exchange difference is an amount resulting from reporting the same number of units of a foreign currency in the reporting currency at different exchange rates.

Miscellaneous income: Miscellaneous income means any income that does not fall within any other provisions of the Tax Credits (Definition & Calculation of Income) Regulations 2002 and is taxable under Part 5 of ITTOIA. This applies, for example, to copyright royalties received by individuals whose activities do not amount to a profession (see paragraph BIM50701 of the Business Income Manual).

U.S. and other foreign stock markets and Regulatory authorities The United States Regulatory Authority The United States Securities and Exchange Commission The United States Securities and Exchange Commission (commonly known as the SEC) was established by the United States Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory agency. The primary responsibility of SEC is to enforce the federal securities laws and regulate the securities industry/stock market.

The SEC was given the power to license and regulate stock exchanges. It administers six major laws that govern the securities industry. They are: The The The The The The Securities Act of 1933, Securities Exchange Act of 1934, Trust Indenture Act of 1939, Investment Company Act of 1940, Investment Advisers Act of 1940 and, Sarbanes-Oxley Act of 2002.

The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for severe offenses. The SEC enforces the statutory requirement that public companies submit quarterly and annual reports, as well as other periodic reports. As part of the annual reporting requirement, the company's top management must provide a narrative account called the "management discussion and analysis" which provides an overview of the previous year of operations and how the company fared in that time period. Management will usually also touch on the upcoming year, outlining future goals and approaches to new projects. The SEC maintains an online database called EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) online from which investors can access this and other information filed with the agency. EDGAR, the Electronic Data-Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission The SEC makes reports (quarterly, annual & other reports from public companies) available to the public via the EDGAR system. SEC also offers publications on investment-related topics for public education. The same online system also takes tips and complaints from investors to help the SEC track down violators of the securities laws.

The United States Major Stock Exchanges National Association of Securities Dealers Automated Quotations system Also known as NASDAQ

It is an American stock market, which was founded in 1971 by the National Association of Securities Dealers (NASD). It is owned and operated by The Nasdaq Stock Market, Inc. the stock of which was listed on its own stock exchange in 2002. NASDAQ is the largest electronic screen-based equity securities market in the United States, with approximately 3,200 companies, it lists more companies and on average trades more shares per day than any other U.S. market.

The New York Stock Exchange Also known as NYSE and "Big Board" The origin of the NYSE can be traced to May 17, 1792, when the Buttonwood Agreement was signed by twenty-four stock brokers outside of 68 Wall Street in New York under a buttonwood tree. On March 8, 1817, the organization drafted a constitution and renamed itself the "New York Stock & Exchange Board". This name was shortened to its current form in 1863. Anthony Stockholm was elected the Exchange's first president. It is a New York City-based stock exchange. It is the largest stock exchange in the world by dollar volume and it has a global capitalization of $25.0 trillion, as of December 31, 2006. The NYSE is operated by NYSE Euronext, which was formed by its merger with the fully electronic stock exchange Archipelago Holdings and Euronext. The New York Stock Exchange trading floor is located at 11 Wall Street, and is composed of five rooms used for the facilitation of trading. NYSE Group merged with Euronext.

TERMINOLOGY 10-K A comprehensive summary report of a company's performance that must be submitted annually to the SEC. The 10-K contains more detail than the annual report. It includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc.

The 10-K must be filed within 60 (it used to be 90 days) days after the end of the fiscal year.

10-KSB 10-Q A comprehensive report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission. It discloses relevant information regarding their financial position. The form must be submitted on time, and the information should be available to all interested parties. The 10-Q is due 35 days after each of the first three fiscal quarters. It is exactly similar to the 10-K. These reports are filed by Small Businesses.


A report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the SEC. Examples of events reported on an 8-K include acquisition, bankruptcy, resignation of directors, or a change in the fiscal year. Also known as Form 8k

American Depositary Receipt - ADR A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars ADRs are listed on either the NYSE, AMEX or Nasdaq.

Canadian Regulatory Authority The Canadian Securities Administrators (CSA)

The Canadian Securities Administrators (CSA) is a forum for the 13 securities regulators of Canada's provinces and territories to coordinate and harmonize regulation of the Canadian capital markets. The 10 provinces and 3 territories in Canada are responsible for securities regulations. Securities regulators from each province and territory have teamed up to form the Canadian Securities Administrators, or CSA for short. The CSA is primarily responsible for developing a harmonized approach to securities regulation across the country. The CSA helps avoid duplication of work and streamlines the regulatory process for companies seeking to raise investment capital and others working in the investment industry. In recent years, the CSA has developed a system of "mutual reliance" that designates one securities regulator as the lead agency when it comes to reviewing applications or disclosure documents from companies that report to more than one jurisdiction. The purpose of this system is to streamlining the process and reducing the number of regulatory agencies a given company must deal with. The CSA provides a wide variety of educational materials on securities and investing. It has produced brochures and booklets explaining various topics such as how to choose a financial adviser, mutual funds, and investing via the internet. All CSA materials are available through your local securities regulator. The CSA also maintains electronic databases called SEDAR and SEDI, available at www.sedar.com and www.sedi.ca respectively. SEDAR is a central database containing public records of all companies publicly traded on the Canadian markets while SEDI is a database containing reports on securities holdings and trading for insiders of Canadian public companies. The System for Electronic Document Analysis and Retrieval (SEDAR) is a mandatory document filing and retrieval system for Canadian public companies. Through SEDAR registered filing agents and public companies file documents such as prospectuses, financial statements and material change reports with the regulatory authorities, and these documents are accessible by the public. The SEDAR database contains hundreds of thousands of submissions in Adobe Acrobat format by public companies, and searches of the database can be undertaken by company name, industry group, document type or date.

Canadian Major Stock Exchanges TSX-- Toronto Stock Exchange The Toronto Stock Exchange (TSX; formerly abbreviated TSE) It is the largest stock exchange in Canada and the fifth largest in the world by market capitalization. Based in Toronto, it is owned and operated by TSX Group (TSX: X) for the trading of senior equities. A broad range of businesses from Canada, the United States and other countries is represented on the exchange. In addition to conventional securities, the exchange lists various exchange-traded funds, income trusts and investment funds. On October 25, 1861, twenty-four men gathered at the Masonic Hall to officially create the Toronto Stock Exchange. The exchange was formally incorporated by an act of the Legislative Assembly of Ontario in 1878.

Montreal Exchange The Montreal Exchange (Bourse de Montral, formerly Montreal Stock Exchange) It is a futures exchange that trades in derivatives such as futures contracts and options. It is located in Montreal , since 1965 in the Tour de la Bourse (Stock Exchange Tower), Montreal's third-tallest building. The story of the first exchange in Canada began in 1832 as an informal stock exchange at the Exchange Coffee House in Montreal, Canada. In 1872, Lorn MacDougall, along with his brothers, Hartland St Clair MacDougall and George Campbell MacDougall, James Burnett and Frank Bond created the Montreal Stock Exchange. In 1982 it changed its name and became the Montreal Exchange. The shareholders voted Lorn MacDougall its first Chairman of the Governing Committee.


1. 2. 3.

Annual Information Form Annual Report Financial Statements -MD & A

The United Kingdom Regulatory Authority Financial Services Authority The Financial Services Authority ("FSA") is an independent nondepartmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. Its main office is based in Canary Wharf, London, with another office in Edinburgh. It is also referred to as the UK Listing Authority (UKLA), and maintains the Official list. The FSA's Chairman and CEO are Callum McCarthy and John Tiner. It was incorporated on 7 June 1985 under the name of The Securities and Investments Board Ltd (SIB) at the instigation of the UK chancellor of the exchequer. It changed its name to the FSA on 28 October 1997 In addition to regulating banks, insurance companies and financial advisers, the FSA has regulated mortgage business from 31 October 2004 and general insurance intermediaries from 14 January 2005.

The United Kingdoms Major Stock Exchanges LSE (London Stock Exchange) It was Founded 1801 and headquarters London, England Key people Christopher S. Gibson-Smith, Chairman Clara Furse, CEO

It is one of the largest stock exchanges in the world, with many overseas listings as well as UK companies. Its current premises are situated in Paternoster Square close to St Paul's Cathedral.

EURONEXT Euronext N.V. is a pan-European stock exchange based in Paris and with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom. In addition to equities and derivatives markets, the Euronext group provides clearing and information services. As of January 31, 2006 markets run by Euronext had a market capitalization of USD$2.9 trillion, making it the 5th largest exchange on the planet. Euronext merged with NYSE Group to form NYSE Euronext, the first global stock exchange. Euronext was formed on September 22, 2000 in a merger of the Amsterdam Stock Exchange, Brussels Stock Exchange, and Paris Bourse, in order to take advantage of the harmonization of the European Union financial markets.

AUSTRALIA Regulatory Authority Australian Securities and Investments Commission (ASIC) Australian Securities and Investments Commission (ASIC) is responsible for the administration of legislation regulating the financial system, including the Corporations Act 2001. It includes licensing of financial service providers in the financial products and services, including market operators and clearing and settlement facility providers. It regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit. Established by the ASIC Act 1989, it began operation from 1 January 1991 as the Australian Securities Commission (ASC), replacing the National Companies and Securities Commission (NCSC) and the Corporate Affairs offices of the states and territories. It became the Australian Securities and Investments Commission (ASIC) on 1 July 1998.

On 1 July 1998 we became responsible for consumer protection in superannuation, insurance, deposit taking and, from 2002, credit.

Australias Major Stock Exchange ASX-Australian Stock Exchange ASX group operates under the brand, Australian Securities Exchange. Operates as one of the worlds top 10 listed exchange groups, measured by its market capitalization. ASX group was created through the merger of the Australian Stock Exchange and the Sydney Futures Exchange. It involves in helping listed companies raise capital providing opportunities for investors to build their wealth enabling buyers and sellers to transact with confidence

HONG KONG Regulatory Authority The Securities and Futures Commission (SFC) is an independent nongovernmental statutory body responsible for regulating the securities and futures markets in Hong Kong. It regulates 1. Licensed corporations and individuals carrying out the following regulated activities: i. ii. iii. iv. v. vi. vii. Dealing in securities Dealing in futures contracts Leveraged foreign exchange trading Advising on securities Advising on futures contracts Advising on corporate finance Providing automated trading services

viii. Securities margin financing ix. Asset management 2. 3. 4. 5. 6. 7. Investment products offered to the public Listed companies Hong Kong Exchanges and Clearing Limited (HKEx) Approved share registrars Investor Compensation Company Limited (ICC) All participants in trading activities

Hong Kongs Major Stock Exchange HKEX ; SEHK: 0388 (The Hong Kong Stock Exchange) The Hong Kong Stock Exchange abbreviated as HKEX ; SEHK: 0388 is the stock exchange of Hong Kong. With a total market capitalization of over US$1.71 trillion as of January 2007, The Hong Kong Stock Exchange ranks sixth in the world by market capitalization of listed companies

INDIAN Regulatory Authority Securities and Exchange Board of India (SEBI) Securities and Exchange Board of India (SEBI) is a board (autonomous body) created by the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with its head office at Mumbai. It is chaired by Mr. M. Damodaran The Board comprises whole time members and outside members (representing the finance ministry, RBI and experts). SEBI has three functions rolled into one body: quasi-legislative, quasijudicial and quasi-executive. It drafts rules in its legislative capacity, it conducts enquiries and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. SEBI Securities and Exchange Board of India has a similar equivalent system which is called EDIFAR.

In a massive effort to digitize the e-filing, Indian government has made all companies to mandatorily file their returns and forms using e-portal. It is named, MCA 21 Project. This project covers 6,500,000 companies registered in India and has been a huge success.

Indias Major Stock Exchanges BSE (Bombay Stock Exchange) The Bombay Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly called The Bombay Stock Exchange, or BSE) is the oldest stock exchange in Asia. It is located at Dalal Street, Mumbai, India. The Bombay Stock Exchange was established in 1875. There are around 4,800 Indian companies listed with the stock exchange and has a significant trading volume. As of May 2007, the equity market capitalization of the companies listed on the BSE was about Rs. 40.7 trillion (US $ 999 billion). The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used market index in India and Asia. As of 2005, it is among the five biggest stock exchanges in the world in terms of transactions volume.

NSE (National Stock Exchange of India) The National Stock Exchange of India Limited (NSE), is a Mumbaibased stock exchange. It is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India.

In March 2006, the NSE had a total market capitalization of 4,380,774 crore INR making it the second-largest stock market in South Asia in terms of market-capitalization. The National Stock Exchange of India was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives.