Stock Market Basics

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Questions and Answers

What should investors consider when evaluating the worthiness of a stock?

Historical stock price fluctuations alone

Media coverage of the company's CEO

The company's brand value and competition (correct)

Popularity of the stock among retail investors

Which of the following is a misconception about stock investing?

Stock investing is inherently risky

Investing in stocks is equivalent to gambling (correct)

Investors can reduce risk through research

Investors can predict market movements accurately (correct)

What financial metric is crucial in determining the profitability of a company?

Earnings Per Share (EPS) (correct)

Market Capitalization

Total Assets

Stockholder Equity

When is it generally considered a better time to buy stocks?

During market corrections or declines Signup and view all the answers

Which factor is NOT typically considered when assessing a company's future growth prospects?

Current stock price Signup and view all the answers

What is considered a major advantage in stock investing according to the principles discussed?

Power of compounding Signup and view all the answers

Which of the following is NOT a common mistake to avoid in stock investing?

Conducting thorough research Signup and view all the answers

What role does competition play in evaluating a stock's potential?

It affects the company's growth opportunities Signup and view all the answers

What is one of the main concerns about buying land or a house purely as an investment?

Maintenance and litigation issues can arise. Signup and view all the answers

Why might an individual find the selling process of real estate frustrating?

The true value of land is not transparent. Signup and view all the answers

What aspect of financial markets helps identify worthy stocks for investment?

Having an understanding of basic financial knowledge. Signup and view all the answers

What is a significant drawback of investing in stocks listed on the Indian Stock Exchange?

99% of stocks may not be consistently worthy of investment. Signup and view all the answers

What is suggested as a reasonable approach when investing in real estate?

Consider the purchase primarily for personal residence. Signup and view all the answers

Which of the following is true regarding the buying and selling of land?

It may take a long time to find a buyer and complete the sale. Signup and view all the answers

How long does the appreciation of land or house typically take to be realized?

Over a period of 20 years. Signup and view all the answers

What feeling does the author imply regarding the true value of land or house investments?

It is often confusing and elusive. Signup and view all the answers

What method was traditionally used for trading stocks before the popularity of the internet?

Open outcry Signup and view all the answers

Which of the following factors can lead to an increase in a company's value?

Growing profit year on year Signup and view all the answers

What is the significance of market capitalization in assessing a company?

It reflects the total value of a company Signup and view all the answers

What was the initial public offer price of Infosys shares in 1993?

Rupees 95 Signup and view all the answers

If a company has 100 million shares priced at $10 each, what is its market capitalization?

$1 billion Signup and view all the answers

What percentage of its post-offer equity capital did Infosys offer through the IPO?

40% Signup and view all the answers

Which of the following statements is true regarding the stock price of a company?

Short term fluctuations are common even for established companies. Signup and view all the answers

What should a good investor focus on when picking stocks?

Long-term business health and growth Signup and view all the answers

What is the significance of Last Traded Price (LTP) in stock trading?

It is the price at which a seller agrees to sell their shares. Signup and view all the answers

Which of the following factors primarily causes the fluctuation of share prices?

The balance between buyers and sellers in the market Signup and view all the answers

What indication might lead an investor to deem a company as worthy for investment?

Growth in cash and cash equivalents Signup and view all the answers

What is the primary concern of investors in relation to market capitalization?

It assists in understanding company size and value. Signup and view all the answers

If someone invested Rupees 5000 in the 1993 Infosys IPO and held until today, what would their investment be worth now?

Over 2 Crores Signup and view all the answers

What is a recommended strategy for investing in stocks according to the content?

Identifying evergreen companies with consistent profit growth Signup and view all the answers

During which hours are the Indian Stock Markets open?

9:15 AM to 3:30 PM IST Signup and view all the answers

What is one common mistake that investors make, according to the content?

Failing to conduct proper research on stocks Signup and view all the answers

What does the EPS of TCS in 2011 indicate?

Each share earned profits of Rupees 38. Signup and view all the answers

What indicates that TCS is a larger company than Infosys despite having a lower share price?

Total market capitalization Signup and view all the answers

How is the P/E ratio of a company calculated?

P/E = Share Price / Earnings per Share. Signup and view all the answers

What does a P/E ratio of 25 generally indicate about an IT company?

Investors expect growth in earnings. Signup and view all the answers

How is earnings per share (EPS) calculated?

Profits from the last 12 months divided by total shares Signup and view all the answers

Which of the following statements is true regarding market capitalization?

It reflects the total value of a company's outstanding shares. Signup and view all the answers

What is a common misconception regarding P/E ratios among amateur investors?

Higher P/E indicates highly valued stocks. Signup and view all the answers

What can cause a company's EPS to turn negative?

Reporting a loss during the financial year Signup and view all the answers

Where can a person check the financial details of TCS including EPS and P/E?

<a href="http://www.moneycontrol.com">www.moneycontrol.com</a> Signup and view all the answers

During which quarter does the financial year for the majority of companies typically run from April to March?

January to March is Q4 Signup and view all the answers

What is the value of the P/E ratio for TCS in 2011 if the share price is Rupees 1000 and EPS is Rupees 38?

26.32 Signup and view all the answers

Which group typically holds the majority of shares in a well-performing company?

Foreign Institutional Investors (FIIs) Signup and view all the answers

Which sector is indicated to generally have a lower P/E ratio compared to IT companies?

Steel Signup and view all the answers

Why is P/E considered immaterial for finding worthy stocks for investing?

P/E ratios cannot be compared across different sectors. Signup and view all the answers

Why can an investor technically buy all shares of Infosys with Rs. 1,42,500 Crores?

This is the total market capitalization of the company. Signup and view all the answers

What financial metric is commonly used to gauge the size of a company?

Market capitalization Signup and view all the answers

Study Notes

Introduction

Stock investing is often perceived as gambling, but with proper skills, it can be a rewarding experience.
Owning land/property is often seen as a safer investment, but it comes with limitations and drawbacks.
Stock value fluctuation depends on market forces like buyer and seller demand, impacting price constantly.
Investing in stocks demands knowledge of financial markets for successful long-term growth.
Profit growth in companies correlates to increased stock value.

Why & How Stock Markets Exist

Companies require capital for expansion; traditional funding methods (loans) are limited.
Initial Public Offerings (IPOs) allow companies to raise capital by selling shares to the public.
Stock markets (secondary market) facilitate trading of these shares after initial offering, enabling investors to buy and sell previously issued shares.

Key Stock Market Terms

Market Capitalization (Market Cap): Total value of a company calculated by multiplying the number of outstanding shares by the current market price per share.
Earnings Per Share (EPS): Earnings per share reflects the company's profitability. It's calculated by dividing annual profits by the total number of outstanding shares..
Price-to-Earnings Ratio (P/E): A valuation metric that compares a company's share price to its earnings per share.
IPO: Initial Public Offering, a type of primary market transaction.

Where to Find Data

Moneycontrol.com is valuable for checking up-to-date financial data of companies, including share prices, market caps, EPS, and P/E ratios.

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Description

This quiz covers the fundamental concepts of stock investing, including the distinction between stocks and real estate, the existence of stock markets, and key terms such as market capitalization. Understanding these principles can help demystify stock investments and promote informed decision-making.