Capital Market Ratios

Group 7
Shreya Pal

H15052

Siddhartha Paliwal

H15053

Snigdha Thalapally

H15054

Swadha Sinha H15055

Utsav Kumar Singh

H15056

Vidhilesh Kumar Mishra H15057

Vipul Puri H15058
Yash Jain H15059
Yashwant Dandu

H15060

Introduction
Market price of a companys share to the companys earnings and dividends
3 most commonly used ratios:
1. Price-earnings Ratio
2. Dividend Yield
3. Price to Book Ratio

Price Earnings Ratio

Historical
PE
Price-Earnings
Ratio

2013

Example: HUL Stock Prices

in BSE
March
2013

March
2012

High

473.00

419.00

Low

432.00

377.00

Average

452.80

397.65

Closing

466.10

409.80

2012

Market Price per

452.80 = 25.57
397.65=30.78
share
17.71
12.92
Earnings per share
Earnings yield is the reciprocal of PE
ratio.

PE Ratio Limitations and

Interpretations
Gives idea of Investors willingness to pay per rupee of companys earnings
Should be interpreted with care as it is ambiguous
Tells us about the earning power of a business based on its future growth
EPS measure is affected by earning method differences
PE Ratio is a good place to start but it needs more detailed analysis to make
good decisions

Alternative PE Measures
Rolling PE EPS from latest four quarters
Forward PE Earning forecasts by analysts (Consensus forecast)
Cyclically adjusted PE ratio (CAPE) 10 years of earnings
*Business cycle = 10 years

Unsystematic Risk
Specific to a security
Type of uncertainty that comes with company/industry you invest in
Example, the risk that ABCD industry employees will go on strike and ABCD
stock prices will suffer as a result is considered to be Unsystematic risk
Other Examples of Unsystematic Risk
A new competitor in the market
Regulatory Change
Management Change
Product Recall

Unsystematic Risk can be reduced through diversification of Portfolio

Dividend Yield
Dividend Yield represents the cash return to the shareholders
Dividend Yield

2013

Dividend per
18.50 = 4.09
share__
452.80
Market price per
share
It is the ratio of
Dividend per Share

Total Return In a Period

For 2013:

2012
7.50 = 1.89%
397.65

Price-to-book Ratio
Compares a companys stock price with the book value
Book value per share = Amount of shareholders equity/Number of shares
Low PB ratio seen as an indication of underpricing of the stock
PB ratio > 1, market expects the company to be higher than the required
rate
PB Ratio affected by choice of accounting methods
Price-to-book ratio
Market price per
share
Book value per
share

2013
452.80 = 33.93
times
13.34

2012
397.65 = 23.93
times
17.11

Beta (Systematic Risk)

A Measure of Volatility, or systematic risk of a security, or a portfolio in comparison
to the market
Also known as market risk
Sources of Systematic Risk
Interest Rates,
Recessions,
Wars, etc,

It indicates how the price of the Equity share responds to swings in the market
Beta < 1; indicates less volatile than market
Beta > 1; indicates more volatile than market
Beta = 1; indicates stock is as risky as the market

Systematic Risk can be mitigated only by being hedged