Following five basics to be kept in mind while investing in share market inorder to protect your investment and growing your hard earned money to create wealth.

Promoter Stake :

Higher the promoter stake greater is the commitment/ confidence in the business. Evaluate the movement of promoter stake over a period of time, if the promoter stake has increased over a period  of time then it’s a positive sign. Decline in the promoter stake needs to be investigated in detail.

Promoters Pledged Shares :

This is a very important aspect which needs to be kept in mind. Although the promoter stake in the company is very high but if majority of his shares are pledges with lendors then its a very risky scenario. In case of global melt down or recession the share price will decline and in case of pledged share the fall may be more drastic as the lendors may start selling the shares in the open market to protect their lending. This may even lead to complete erosion of promoter stake. One of the reasons of few stocks which were quoting at tripple digits in the past and now available at single digit is the selling of the promoter stake in the open market by the lendors.

EPS And Price Earning Ratio :

One of the most popular investment ratios, it can be computed as: Profit Post Tax/ Total quantity of equity shares issued = EPS

Market Price of the share/ EPS = P/E Ratio. This ratio highlights the connection between the market price of a share and its EPS.

If the current P/E ratio is low, as against the future prospects of a company, then the shares make an
attractive investment option. But if the company is saddled with losses and falling sales, stay away
from it, despite the low P/E ratio.

PEG Ratio :

PEG is an essential and extensively used ratio for calculating the inbuilt worth of a share. It helps you decide whether the share is under-priced, totally priced or overpriced. To derive the ratio, you have to associate the P/E ratio with the expected growth rate of the company. It assumes that higher the growth rate of the company, higher the P/E ratio of the company’s shares. Vice versa also holds true. P E Ratio/Expected growth rate of the EPS of the company. In general, a PEG lesser than 0.5 is a lucrative investment opportunity. However if the PEG exceeds 1.5, it is time to sell.

Book Value per share :

This ratio shows the worth of each share of a company as per the company's accounting books. It is calculated as:  Shareholders' funds/ Total quantity of equity shares issued = Book Value per share.

Shareholders' funds can be computed as such:                   Total assets (equity capital to the company's reserves) less total liabilities (money owed to creditors). Book value is an old record that uses the original purchase prices of the assets. However, it doesn't show the present market price of  the company’s assets. As a result, this ratio has a restricted use when it comes to estimating the market price of the shares, but can give you an estimate of the minimum price of the company’s shares. It will also help you judge if the share price is overpriced or under-priced.