Finance Management Articles - Page 47 of 96

Preference shares are ownership security or equity. However, preference shareholders do not have any voting rights in a stockholders’ meeting. Preference shares pay dividends that are mentioned in the prospectus when the share is bought. Preference share dividends are paid before common stock dividends.Note − Preference shares are ‘preferred’ so they need to be paid before common shares.Calculating the yieldYield is the effective interest rate obtained from the preference share as dividends. The yield is equal to the yearly dividend divided by the current price of the stock.Suppose a preference share of INR 120 pays dividends of INR 50 per ... Read More

There is a distinct difference between "growth shares" and "income shares", however finding the value of grown and income shares is easier said than done. Even in mature markets, the difference between the growth shares and the income shares is not clear. Let’s take a closer look at both the types and differentiate the two.Growth SharesGrowth shares are those shares whose company earnings are estimated to grow at a faster rate than the market. These shares, therefore, have the chance to rise incredibly faster than the market. Growth stocks tend to have a high price-to-earnings (PE) ratio, indicating that they ... Read More

Risk Preference is one’s tendency to choose either a risky or less risky option. Usually, economists and finance professionals, and investors apply the concept of risk preference in economics, but the concept can be applied to any decision one makes that involves risk. There are several types of risk preferences, and the risk involved generally depends on the decision-maker and the investor for whom the decision-maker takes the risk.Risk-Seeking PreferenceThe risk-seeking preference applies to investors who are willing to take increased risks to achieve higher-than-usual returns. It is necessary to weigh all the factors associated with the risk and assess ... Read More

In Mathematics, the mean or average return is defined as the average of all the given values. To find the mean, the added sum of all the given values is divided by the total number of values given.Standard deviation (SD), on the other hand, is a measure of the dispersion of the data points from the mean. Standard deviation, therefore, shows how far the data points are spread out from the average value. SD measures the absolute variability of the data distribution.Note − SD is the most popular measure of variability and is used often to determine the volatility of ... Read More

The Constant Growth Model is a way of share evaluation. Also known as Gordon Growth Model, it assumes that the dividends paid by the company will continue to go up at a constant growth rate indefinitely. It helps investors determine the fair price to pay for a stock today based on future dividend payments.For a company paying out a steadily rising dividend, one can estimate the fair value of the stock with a formula that considers that constantly increasing payout is responsible for the stock's value. The formula is, $$\mathrm{𝑃 =\frac{𝐷}{(𝑟 − 𝑔)}}$$Where, P is the current share price, D ... Read More

Valuation of SharesValuation of a share means finding the fair value of the share being considered. It is a process of understanding the value of a company’s shares. It indicates whether a share is overvalued or undervalued. The valuation is based on market supply and demand and is based on quantitative measures.The value of shares of listed companies is easy to get. However, the companies that are not listed need to be carefully reviewed before judging their fair value.When is the valuation of shares required?Valuation of shares is needed when one is buying or selling a business and wants to ... Read More

Geometric Mean ReturnThe geometric mean return, also called the geometric average return, is a way to calculate the average compounding rate of return on the investments. It considers the compound interests multiplied by the interest over the number of periods.The geometric mean return is a good measure above the arithmetic return that calculates the interests in a simple arithmetic measure. In case of arithmetic returns, all interests of sub-periods are added and then the total is divided by the total number of sub-periods. The arithmetic average return is misleading in case of long-tenured investments because it overstates the true return. ... Read More

Holding Period Return (HPR) is the return received during the holding period of a portfolio of assets or individual assets. The holding period is the period of time when the stock is kept in one’s possession; that is, it is the time from buying an asset till it gets sold in the market.The HPR is the total market return received from holding a set of assets or a singular asset over a given period. It is usually expressed as a percentage value. The HPR is calculated from the total returns of either the set of assets or the portfolio. The ... Read More

The standard deviation (SD) of a dataset is its average amount of variability. It indicates how far each of the data values in a given distribution deviate from the mean, or center, of the distribution. In the case of normal distributions, a larger standard deviation means that the given values are generally far from the mean, while a smaller standard deviation indicates the values are clustered closer to the mean.Variance is the average of the squared SDs from the mean. To count variance, one needs to first subtract the mean from each number and then square the outcomes to find ... Read More

Portfolio Return refers to the loss or gains realized by a portfolio of investment containing several types of investments. Portfolio Return aims to meet the preferred benchmarks, meaning a well-diversified portfolio of stock/bond holdings or a given mix of the two asset classes. Portfolios aim to deliver returns based on the promised investment strategy objectives, and the risk tolerance.Investors typically are interested in one or more sets of portfolios and their aim is to get a balanced return back over time. Many types of portfolios are available to investors right from equities, debt to Balanced Fund consisting of a mix ... Read More