Stock market terminologies with examples

Author: EQSIS
Published Date: November 23, 2016

Stock market terminologies with examples

1. What are Blue Chip Companies?

Blue Chip Company is a nationally recognized, well-established and a financially sound company. The name “blue chip” came about because in the game of poker the blue chips have the highest value. Such companies are the industry leaders with dominant products or services.
Even in the face of adverse economic conditions they can operate profitably and grow steadily thereby gaining public’s confidence.

Examples of blue chip companies : Tata Consultancy Services (TCS), Reliance Industries, Oil and Natural Gas Corporation Limited (ONGC), Imperial Tobacco Company of India Limited (ITC), Housing Development Finance Corporation Limited (HDFC) Bank, Sun Pharmaceutical, State Bank of India (SBI), Industrial Credit and Investment Corporation of India Limited (ICICI) Bank, Infosys.

2. What is Net Worth?

Net worth is a concept that can be applied to both individuals and businesses, to measure their real financial worth. It’s the value of everything a company/individual own, minus all their debts. A consistent increase in net worth means assets are growing faster than debts, this indicates good financial health. Conversely, when liabilities grow faster than assets, or when the values of assets drop, net worth decreases, indicating financial problems.

Net worth formula

Net Worth = Total Assets – Liabilities.

Examples for net worth: Microsoft Co-founder Bill Gates is the richest person in the world with a net worth of $75 billion. Reliance Industries net worth is Rs. 240,950 Cores.

3. What is Capital Reserve?

  • In simple words, a reserve which is created out of the capital profit is known as capital reserve.
  • It is an account maintained to meet investments in projects or other large expenses.
  • It will be shown in the balance sheet of the company.

Example of capital reserve: A drug manufacturing company planned to build a new plant on introducing pharmaceutical manufacturing branch by withdrawing from capital reserve amount of rupees 5 crore.

 4. What is Subsidiary Company?

  • A subsidiary is a company with voting stock that is more than 50% controlled by another company, usually referred to as the parent company or the holding company.
  • A subsidiary is either partly or completely owned by the parent company, which holds a controlling interest in the subsidiary company.
  • This separate legal structure may be used to gain certain tax benefits, track the results of a separate business unit, segregate risk from the rest of the organization, or prepare certain assets for sale. A larger business may own dozens or even hundreds of subsidiary companies.

Example of Subsidiary Company

State Bank of India (SBI) is the parent company and there are five Banking subsidiaries under SBI that are

  1. State Bank of Bikaneer and Jaipur (SBBJ)
  2. State Bank of Hyderabad (SBH)
  3. State Bank of Mysore (SBM)
  4. State Bank of Patiala (SBP)
  5. State Bank of Travancore (SBT)

5. What is Corporate Action?

  • corporate action is any activity that causes material change to a company and affects its stakeholders which includes shareholders and bondholders.
  • Corporate actions are typically agreed upon by a company’s board of directors and authorized by the shareholders. Some examples are stock splits, dividends, mergers and acquisitions, rights issues and spin offs.
  • It is a process that will bring actual change to its stock. By understanding these corporate action and their effects, an investor can figure out a clearer picture of a company’s financial affairs and how it will influence the company’s share price and performance which will help them to decide whether to buy or sell the stock.

Example of corporate action:

Symbol Company Name Series Face Value  Corporate Action Ex-Date
AUROPHARMA Aurobindo Pharma Limited EQ 1  Interim Dividend Rs 1.25 Per Share 24-Nov-16
IGL Indraprastha Gas Limited EQ 10  Interim Dividend Rs 3.50 Per Share 29-Nov-16
NAVNETEDUL Navneet Education Limited EQ 2  Buy Back 24-Nov-16
KPRMILL K.P.R. Mill Limited EQ 10  Fv Splt Frm Rs 10 To Rs 5 29-Nov-16
INDIANHUME Indian Hume Pipe Company Limited EQ 2  Bonus 1:1 9-Dec-16

6. What is Corporate Restructuring?

  • Corporate restructuring is the process of redesigning one or more aspects of a company. In other words, making changes in the composition of a firm’s business portfolio in order to have a more profitable enterprise.
  • The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, or poise the corporation to move in an entirely new direction.
  • A Corporate Restructuring can take many forms like Mergers & Acquisitions, Joint Ventures, Spin/Split offs, Leveraged Buyouts, Share repurchases, Privatization, ESPO etc…
  • A successful restructuring will usually result in a higher valuation of the company.

Example of corporate restructuring:  A corporate restructuring may call for spinning off some departments into subsidiaries as a means of creating a more effective management model as well as taking advantage of tax breaks that would allow the corporation to divert more revenue to the production process. In this scenario, the restructuring is seen as a positive sign of growth of the company and is often welcome by those who wish to see the corporation gain a larger market share.

7. What is Merger and Acquisition?

  • A merger is a combination of two existing companies into one new company, whereas an acquisition is the buying of one company (the target) by another company.
  • Zain Telecommunications operating in Africa merged with Bharti Airtel Limited based in India is a merger, whereas OLA cabs acquiring Taxi For Sure is an acquisition.


  • A merger is a combination of two existing companies into one new company.
  • This action involves stock swap or cash payment to target company (which is getting merged).
  • In a merger, the acquiring company takes over the assets and liabilities of the merged company.
  • Mainly there are five types of company mergers:-
    1. Conglomerate: when two concerns dealing in totally different activities join hands.
    2. Horizontal: when two or more concerns dealing in same product or service join together.
  • Market Extension: companies sell same products but compete in different markets.
  1. Product Extension: add together products that go well together
  2. Vertical Merger: two firms engaged at different stages of production or distribution of same product or services

Example of merger:

  1. British Salt operating in UK merged with TATA Chemicals based in India.
  2. Zain Telecommunications operating in Africa merged with Bharti Airtel Limited based in India.
  • Bank of Rajasthan operating in India merged with ICICI Bank (India)


  • An Acquisition (also known as a takeover) is the buying of one company (the target) by another company.
  • It typically has a company – the buyer– that purchases the assets or share of the target company and is often made as part of a company’s growth strategy to expanding on its own business. Acquisitions are often paid in cash, the acquiring company’s stock or a combination of both.
  • Acquisitions can be friendly or hostile. In a Friendly takeover, the companies proceed through negotiations (i.e. the target company expresses its agreement to be acquired) whereas in the care of a hostile acquisition, the takeover target is unwilling to be bought, or the target’s board has no prior knowledge of the offer.

Example of acquisition:

The search engine giant, Yahoo, acquired the one year old Bangalore based startup Bookpad for a little under $15 million. While the deal value is relatively small, this was the first acquisition made by Yahoo, and was much talked about.


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