Glossary

Financial terms used across this blog, explained without the jargon. Sorted A to Z.

Advance Gold Model: A manufacturing arrangement where the client provides the raw gold upfront before production begins. The manufacturer earns only the making charges (the value it adds). This eliminates gold price risk for the manufacturer, reduces working capital tied up in raw materials, and compresses the cash cycle.
Asset-Light: A business model where the company avoids owning heavy fixed assets like factories, land, or machinery, instead leasing or outsourcing them. Asset-light companies can scale faster and with less capital. The tradeoff is less direct control over operations.
Beta: A measure of how much a stock moves relative to the broader market. A beta of 1.0 means the stock moves in line with the market. A beta above 1 means it tends to swing more than the market in both directions. Higher beta means more volatility.
CAGR (Compound Annual Growth Rate): The steady annual growth rate that would take a number from its starting value to its ending value over a given period. If revenue grew from ₹100 Cr to ₹200 Cr in 3 years, the CAGR is roughly 26%. It smooths out year-to-year fluctuations into a single comparable number.
Capex (Capital Expenditure): Money spent by a company to buy, maintain, or improve long-term physical assets like factories, machinery, or land. High-capex businesses need to keep reinvesting just to operate. Low-capex businesses generate more free cash from the same revenue.
CFO (Cash Flow from Operations): The actual cash a business generates from its core operations, after accounting for working capital changes. Different from profit: a company can be profitable on paper but CFO-negative if it's tying up cash in inventory or waiting on receivables. CFO is often considered a more honest measure of business health than reported profit.
DII (Domestic Institutional Investors): Indian institutions that invest in the stock market, primarily mutual funds, insurance companies, and pension funds. DII buying is often seen as a positive signal because these are professional, research-driven investors with a longer time horizon than retail investors.
EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortisation. A measure of operating profitability that strips out financing costs and non-cash accounting charges. Often used to compare companies with different debt levels or accounting policies. Think of it as "how much the core business earns before the accountants get involved."
Equity Dilution: When a company issues new shares, existing shareholders own a smaller percentage of the company. Dilution can happen to raise capital or to fund acquisitions via share swap. The key question is whether the value created by the new shares outweighs the dilution to existing holders.
ESOP (Employee Stock Option Plan): A programme that gives employees the right to buy company shares at a fixed price in the future. If the share price rises above that price, the options become valuable. ESOPs are used to attract, retain, and align employees with company performance.
FII (Foreign Institutional Investors): Foreign institutions that invest in Indian stock markets, such as global mutual funds, hedge funds, and sovereign wealth funds. FII flows can significantly move stock prices. Low FII ownership in a growing company can sometimes be seen as an opportunity if global funds haven't yet discovered it.
Forward PE: Price-to-Earnings ratio calculated using estimated future earnings rather than past earnings. Forward PE gives a sense of how expensive a stock is relative to where earnings are heading. It requires trusting the earnings estimate, which introduces uncertainty.
Free Cash Flow (FCF): Cash generated by the business after paying for capital expenditure. The money left over that can be used to pay down debt, return capital to shareholders, or reinvest in growth. A business with positive FCF is self-funding. Negative FCF means it needs external capital to sustain itself.
Gold Metal Loan (GML): A financing arrangement where a jewellery manufacturer borrows physical gold from a bank instead of cash, manufactures jewellery, sells it, and repays the equivalent weight of gold. GMLs carry lower interest rates than cash loans and eliminate gold price risk since you borrow and repay the same commodity.
Gold Loss: Gold wasted or lost during the manufacturing process. Even small percentage reductions matter significantly because gold is expensive. Reducing gold loss directly improves profitability on every order manufactured.
Interest Coverage Ratio: How easily a company can pay its interest expenses from operating profit. Calculated as operating profit divided by interest expense. A ratio of 4x means the company earns four times what it needs to cover interest. Below 1x is a red flag. Higher is safer.
Market Cap (Market Capitalisation): The total market value of a company's outstanding shares. Calculated as share price multiplied by total number of shares. Used to compare company sizes and calculate valuation ratios like PE and Price-to-Sales.
Net Debt: Total borrowings minus cash and cash equivalents. Net debt gives a clearer picture of a company's actual debt burden than gross borrowings alone. "Net debt-free" means the company holds more cash than it owes.
PAT (Profit After Tax): The bottom-line profit a company earns after paying all expenses, interest, and taxes. Also called net profit. It is the number most commonly referred to when people say a company "made X crore in profit."
PAT Margin: PAT as a percentage of revenue. If a company earns ₹10 Cr on ₹200 Cr of revenue, PAT margin is 5%. Higher PAT margins mean the business keeps more of each rupee it earns. Margins expanding over time is usually a positive sign.
PE Ratio (Price to Earnings): The most common valuation metric. Market cap divided by annual profit (or share price divided by earnings per share). A PE of 28x means you are paying ₹28 for every ₹1 of annual profit. Lower PE can mean cheaper or slower growth. Higher PE often implies the market expects strong future growth. Context and sector matter a lot.
Price-to-Sales (P/S): Market cap divided by annual revenue. Useful when PE ratios are not meaningful, such as for loss-making or very thin-margin companies. A P/S of 1x means the market values the company at exactly one year's worth of revenue.
Promoter: In the Indian context, promoters are the founding shareholders or controlling family of a listed company. They typically hold a significant stake and manage the business. Promoter holding changes are watched closely by investors: falling promoter stake can be a concern, though it can also simply result from share-based acquisitions rather than selling.
ROCE (Return on Capital Employed): A profitability ratio that measures how efficiently a company uses its capital to generate profit. Calculated as operating profit divided by total capital employed. A higher ROCE means the business generates more profit per rupee of capital invested in it.
Share Swap: An acquisition where the buyer pays using its own shares instead of cash. The seller receives shares in the acquiring company rather than money. Share swaps preserve cash but dilute existing shareholders. They are common when a company wants to grow without spending cash.
Trailing PE: PE ratio calculated using actual earnings from the last 12 months, not future estimates. More conservative than forward PE since it is based on known numbers rather than projections.
Working Capital: The money a business needs to fund its day-to-day operations: buying raw materials, building inventory, and covering the gap while waiting for customers to pay. High working capital requirements mean the business needs a lot of cash just to keep running, even when it is profitable.
Working Capital Cycle (Days): The number of days it takes a company to convert its working capital back into cash, from purchasing raw materials to collecting payment from customers. Fewer days means less cash tied up and a more efficient business. Companies actively try to reduce their working capital cycle.