10 common but powerful stock market terminologies explained

If you’re new to the stock market, understanding the language used by investors and analysts can feel overwhelming. Terms like EPS, P/E Ratio, Bonus Shares, and Dividend Yield are frequently used—but what do they actually mean?

In this guide, we’ll break down the most common stock market terms in simple language, with practical examples. Whether you’re a beginner or brushing up your basics, this article will help you speak the language of the market confidently.

1. EPS (Earnings Per Share)

Definition: EPS measures how much profit a company makes per share of its stock.

Formula: EPS=Net ProfitNumber of Outstanding Shares\text{EPS} = \frac{\text{Net Profit}}{\text{Number of Outstanding Shares}}EPS=Number of Outstanding SharesNet Profit​

Why It Matters: A higher EPS usually means the company is more profitable and can be a good sign for investors.

Example: If a company earns Rs. 10 crore net profit and has 1 crore shares, EPS=10,00,00,0001,00,00,000=Rs.10\text{EPS} = \frac{10,00,00,000}{1,00,00,000} = Rs. 10EPS=1,00,00,00010,00,00,000​=Rs.10

2. P/E Ratio (Price to Earnings Ratio)

Definition: The P/E ratio shows how much investors are willing to pay for each rupee of earnings.

Formula: P/E Ratio=Current Share PriceEPS\text{P/E Ratio} = \frac{\text{Current Share Price}}{\text{EPS}}P/E Ratio=EPSCurrent Share Price​

Why It Matters: A high P/E might mean the stock is overvalued, or investors expect high growth. A low P/E could mean the stock is undervalued.

Example: If a company has EPS of Rs. 10 and its stock is priced at Rs. 150: P/E=15010=15\text{P/E} = \frac{150}{10} = 15P/E=10150​=15

So you’re paying Rs. 15 for every Re. 1 the company earns.

3. Bonus Shares

Definition: Bonus shares are free additional shares given to existing shareholders from the company’s reserves.

Bonus Ratio Example: If a company declares a 1:2 bonus, you’ll get 1 extra share for every 2 shares you already own.

Impact:

• Increases number of shares.
• Reduces EPS and share price proportionally.
• Doesn’t change overall investment value instantly.

4. Dividend

Definition: A dividend is a portion of the company’s profit paid to shareholders, usually in cash or additional shares.

Types:

• Cash Dividend – Paid directly to your bank.
• Stock Dividend – Given in the form of extra shares.

Dividend Yield Formula: Yield=Annual DividendShare Price×100\text{Yield} = \frac{\text{Annual Dividend}}{\text{Share Price}} \times 100Yield=Share PriceAnnual Dividend​×100

Example: If you own 100 shares and the company declares Rs. 5 per share dividend, you get Rs. 500.

5. Right Shares

Definition: Right shares are issued when a company needs to raise additional capital. These are offered to existing shareholders at a discounted rate.

Example: A 1:5 right share means you can buy 1 extra share at a discounted price for every 5 shares you own.

Key Point: You need to apply and pay for right shares—they are not free like bonus shares.

6. Book Value

Definition: Book Value is the value of a company if it were liquidated today. It is calculated using the company’s total assets minus liabilities.

Formula: Book Value per Share=Total Assets – LiabilitiesTotal Shares\text{Book Value per Share} = \frac{\text{Total Assets – Liabilities}}{\text{Total Shares}}Book Value per Share=Total SharesTotal Assets – Liabilities​

Why It’s Important: Helps identify undervalued or overvalued stocks.

7. Face Value

Definition: The original price of a share listed in company records—usually Rs. 10 in Nepal. This value is different from the market price.

Why It Matters:

• Important in calculating dividends and bonus shares.
• Used in split, bonus, or right share announcements.

8. Market Capitalization (Market Cap)

Definition: The total value of a company’s shares in the market.

Formula: Market Cap=Share Price×Total Outstanding Shares\text{Market Cap} = \text{Share Price} \times \text{Total Outstanding Shares}Market Cap=Share Price×Total Outstanding Shares

Example: If a company has 10 lakh shares and each is priced at Rs. 300: Market Cap=10,00,000×300=Rs.30Crore\text{Market Cap} = 10,00,000 \times 300 = Rs. 30 CroreMarket Cap=10,00,000×300=Rs.30Crore

Classification in Nepal:

• Small Cap: < Rs. 5 billion
• Mid Cap: Rs. 5–15 billion
• Large Cap: > Rs. 15 billion

9. IPO (Initial Public Offering)

Definition: The first time a private company offers shares to the public.

Why Investors Love It:

• Can offer high short-term returns.
• Opportunity to invest early in promising companies.

10. AGM (Annual General Meeting)

Definition: A yearly meeting where a company’s board discusses performance, declares dividends, and approves key decisions.

Key point: Shareholders often need to attend the AGM or register for it to be eligible for dividends and bonuses.