Retention ratio is also known as Ploughback ratio.

It is a fundamental analysis ratio that measures the proportion of earnings that is retained back in the business rather than being paid out as dividends to shareholders. It is the opposite metric of Dividend Payout Ratio.

At the end of every fiscal a company generates earnings that may be positive (profits) or negative (losses). A company with profits provides its management with ample space to utilize this surplus for a number of purposes. They may decide to pay the entire profit to the shareholders as dividends, can retain it to reinvest for growth purpose or can also opt for a combination of both.

Every investment comes with a certain degree of risk, attached to it.

For example, the fixed deposits may see a decline in interest rates, real estate might lose value, or the stocks purchased might witness capital erosion.

The additional income or the rate of return earned from an investment compensates an investor for the risk he undertakes.

That is, the higher the risk, the higher the return the stock has to pay back, to become a rational investment.

So, it can be understood that the concept of risk and return go hand in hand. Let’s discuss Capital Asset Pricing Model.

Valuation forms an important part of Fundamental Analysis. Free Cash Flow to Firm (FCFF) is one of the most widely used tools which is used to analyze the free cash available in the company by taking into account the free cash flow generated by the company in the future and arriving at the present value of the forecasted cash flows as on today.

It involves a lot of forecasting and estimation based on the past and present financial and economic environment of the business.

To forecast the cash flow one needs to study the business fundamentals thoroughly in order to understand at what rate will the cash flows grow or fall in the coming next years.

It is an essential step in the process of DCF valuation.

Forecasting is not an easy task as it is the essence of a good valuation model.

The better one can estimate the future cash flows and the financials, the better and closest it brings to the actual value of the firm.

Before investing in any company, it is important for us to understand the real worth of its shares. This will be possible if we can calculate the intrinsic value of the share. The process of calculating this intrinsic value is known as share valuation.

Intrinsic value refers to the value which is theoretical in nature. This means that the value is not affected by its market price.

Trading multiples is a valuation technique used to value a company by comparing the company’s financial valuation metrics to those of its peers

Typically, the multiples are a ratio of some valuation metric (such as market capitalization, enterprise value) to some financial performance metric (such as sales, EBITDA, earnings), etc.

The basic idea behind this valuation technique is that companies with similar characteristics should trade at similar multiples, all other things being equal. Let's get a clear idea of how to use trading multiples for valuing a company.  

During our school or college, either our parents or our teachers used to forecast our results before its announcements and we used to be very panicky about its outcome. Right? Similarly, the companies before announcing their results have a mechanism in place by analysts who use the sales forecasting method to understand their results based on some data points.

Thus Forecasting is a technique that uses historical data as inputs for making estimates that are predictive in determining the direction of future trends.

To forecast sales, investors can gather data from the Company’s annual reports, Con calls, Industry reports, brokerage houses reports, rating agencies reports, and global organizations like IMF.

We have been hearing a lot about the government fast-tracking its Disinvestment plans, as hardly 5 months are left for the end of FY20.

The Government has plans to reduce its stake and monetize its investments to bridge the fiscal gap and budgetary deficit appearing from the corporate tax rate cuts and many more fiscal prudence deficits.

To divest a promoter’s stake, you must have read that the company will reduce its stake via OFS or Offer for Sale.

So what does it actually mean to us as an investor? - To know, listen to this podcast.

Company Analysis? Now, this is a really important topic to discuss if you are looking to create long-term wealth out of stocks. For long-term wealth creation, it is extremely important to understand the company you are going to invest in.

This entire process of giving a refined look to a company is known as Fundamental Analysis and this is one of the best ways to understand how investors evaluate a company for long-term investment. Or else just get to an overall idea on the topic, stay tuned.

Steel is a commodity that is used in our day-to-day life. It is used in constructing homes we live in, the cars we drive, the utensils we eat in, etc.

Steel finds usage in various sectors including construction and infrastructure, engineering, automobiles, etc.

It is an important engineering and construction material.

Steel is widely used all around the world because of its strength and it can be recycled over and over again without loss of its property. (Fact: Steel is roughly 1,000 times stronger than iron in its purest form, and it can be recycled without loss of its strength)

Steel is crucial in the development of the infrastructure of any economy.

The global business environment is becoming more and more dynamic. This requires companies to diversify their asset base, and enter new markets and geographies to achieve technological advancement. Have access to adequate liquidity to obtain a competitive advantage and sustain growth for a longer period.

This compels companies to make inter-corporate investments (i.e., investments in other companies), which could be through the purchase of shares or may involve buying the debt of another company or acquiring any company for technological advancement.

Sometimes companies may prefer partial ownership and may opt to own a minority stake along with significant influence, but not control, over the investor's business.

Thus, the parent acts as a Minority Active investor. That is, it limits its ownership to more than 20% however less than 50%. The concept of “Associate Company” comes into play when such an ownership pattern is followed by the parent company.

The global business environment is becoming more and more dynamic. This requires companies to diversify their asset base, and enter new markets and geographies to achieve technological advancement. Have access to adequate liquidity to obtain a competitive advantage and sustain growth for a longer period.

This compels companies to make inter-corporate investments (i.e., investments in other companies), which could be through the purchase of shares or may involve buying the debt of another company or acquiring any company for technological advancement.

Sometimes companies may prefer partial ownership and may opt to own a minority stake along with significant influence, but not control, over the investor's business.

Thus, the parent acts as a Minority Active investor. That is, it limits its ownership to more than 20% however less than 50%. The concept of “Associate Company” comes into play when such an ownership pattern is followed by the parent company.