Twelve short, plain-English explanations of the concepts that come up everywhere else on this site — from what a share actually is, to how to read a balance sheet, to why a low P/E isn't automatically "cheap."
By the ReviewHub Editorial Team · Last updated
A share is a small, fractional slice of ownership in a company. When you buy one share of a company with 100 crore shares outstanding, you own one-hundred-millionth of it — entitled to your slice of profits (via dividends, if the company pays them) and voting rights at shareholder meetings.
Stock exchanges (in India, mainly the NSE and BSE) are marketplaces that match buyers and sellers. A market order executes immediately at the best available price; a limit order only executes at a price you specify or better. Market capitalization (share price × total shares outstanding) is the market's current price tag on the whole company — it is not the same as the company's cash, revenue, or profit.
Every listed company publishes three core statements, and each answers a different question:
A company can report a profit on its income statement while its cash flow statement shows it's short on cash — timing differences (customers who haven't paid yet) and non-cash items (like depreciation) explain the gap. Reading all three together, not just one, gives the fuller picture.
These aren't the same number, and the gap between them matters:
Example: a company sells ₹100 crore of goods (revenue), spends ₹60 crore making them (gross profit: ₹40 crore), ₹20 crore running the business (operating profit: ₹20 crore), and pays ₹5 crore in interest and tax (net profit: ₹15 crore).
The Price-to-Earnings ratio divides a company's share price by its earnings per share (EPS) — in effect, how many years of current profit you're paying for at today's price.
A high P/E often (not always) signals that the market expects fast future growth; a low P/E can mean a genuine bargain, or it can mean the market expects trouble ahead. P/E only means something in context — compared against the same company's own history, or against close industry peers with similar growth and risk profiles. A P/E of 40 might be ordinary for a fast-growing software company and alarming for a mature utility.
Both measure how efficiently a company turns capital into profit, but they use different capital bases:
Return on Equity looks only at shareholders' own money. Return on Capital Employed looks at all capital used in the business, including debt — which makes it harder to inflate. A company can post a high ROE simply by taking on more debt (borrowed money isn't in the equity denominator), so comparing ROE and ROCE side by side, and checking the debt load behind them, gives a more honest read than either ratio alone.
Debt isn't inherently bad — borrowing to fund growth can amplify shareholder returns when it works. The two questions that matter are how much debt there is relative to the business's size, and how comfortably it can be serviced:
A high debt-to-equity ratio means more of the business is funded by borrowing rather than owners' capital — riskier if profits dip. A low interest coverage ratio (say, under 2-3x) means a company's operating profit barely covers its interest bill, leaving little room for a bad year.
Operating cash flow is the actual cash generated by the core business, stripped of accounting adjustments. Free cash flow goes a step further:
Free cash flow is what's genuinely left over after a company has already spent what it needs to maintain and grow its operations — the pool it can use to pay dividends, buy back shares, pay down debt, or make acquisitions, without raising new money.
P/E is only one lens. A few others commonly used alongside it:
No single valuation method is "correct" in isolation — each answers a slightly different question, and experienced investors typically triangulate across a few of them, always relative to a company's own history and its closest peers.
An Initial Public Offering is the first time a company sells shares to the public, moving from private to listed. In India's standard "book-building" process, the company sets a price band (a range, not a fixed price) and investors bid within it across three categories — Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs/HNIs), and Retail Individual Investors — each with a reserved portion of the issue. The final price is set based on demand, and "subscription" figures (e.g. "6x subscribed") describe how many times the shares on offer were bid for.
You'll often see a Grey Market Premium (GMP) quoted before listing — an unofficial, unregulated indicator of what dealers expect the stock to list at, traded informally outside any exchange. It is not a regulated or guaranteed figure, and can move sharply (or vanish) right up to listing day. See our IPOs page for currently tracked issues.
A bond is a loan you make to a government or company, which promises to pay you back. The core terms:
A bond's market price moves inversely to interest rates: when rates rise, existing bonds with lower fixed coupons become less attractive, so their price falls (and vice versa). See our Bonds page for more on how these terms play out in real instruments.
Before asking "what will I make," disciplined investors ask "what can I afford to lose." Three habits do most of the work:
Try the position sizing calculator to see how these connect in practice.
Diversification means spreading money across assets that don't all move for the same reasons — different asset classes (equity, debt, gold, cash), sectors, and company sizes — so that one bad outcome doesn't sink the whole portfolio.