Question

Explain the following concepts:

- Capital structures:

-Initial public offering (IPO):

-ASX200 index:

-P/E ratio:

Answer 1

Capital Structures

Capital structure is all about strinking an apt balance between sources of fund i.e primarily, debt & equity.

Basically, The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Choosing the right mix amongst them is very crucial for any business. Each source has its own pros & cons - and, have to be selected as per the requirement of the firm.

IPO

There're two markets in a broad context - Primary market & Secondary market. Primary market deals in fresh issues (IPO) & secondary market deals in the already issued shares. IPO is one of the ways through which a firm can raise capital from public irrespective of age of the firm - also called going public. Shares issued in this market can be traded later in the secondary market.

ASX200 Index

Before understanding ASX200 index, let's decode "Index" - Index is a way to track performance of a bunch of assets (having similar characteristics) in a standardized manner. e.g. S&P500, ASX200 etc.

Similarly, ASX200 index consists of 200 largest stocks (float adjusted) listed on Australian stock exhange. This can also serve as a benchmark for other stock evaluation in Australia.

PE Ratio

It's a ratio tracking how much is the price per share of a company viz a viz its earnings. Formula for this ratio is

PE ratio= Market value per share/ earning per share (EPS)

PE ratio shows current investor demand for a company share. A high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future.