A simple guide to the stock market, financial statements, banking and valuation terms used by Pakistan Stock Exchange investors. Read from the beginning or jump directly to any definition.
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A share is a small piece of ownership in a company. If a company splits itself into, say, 10 million equal pieces and you buy one of those pieces, you now own a tiny slice of that company. Buy 100 shares, and you own 100 tiny slices. That's it — a share is just proof that you own a small part of a real business.
The stock market is simply a marketplace — except instead of buying vegetables or clothes, people are buying and selling ownership (shares) in companies. In Pakistan, this marketplace is called the Pakistan Stock Exchange, or PSX. It's the one official place where shares of Pakistani companies are bought and sold every working day.
Think of the KSE-100 as a broad report card for the PSX market. It contains 100 companies selected under the index methodology, which includes sector representation and free-float market capitalization. It is not simply a list of the 100 largest or most actively traded companies. When financial news says "the market went up," it often refers to a rise in the KSE-100 Index.
When a company makes a profit, it can do one of two things with that money: reinvest it back into the business, or share some of it with the people who own shares (you, if you're a shareholder). That shared portion is called a dividend. It's basically the company saying "thanks for owning a piece of us — here's a small cash reward." Dividends matter because they're real cash landing in your account, regardless of what the stock's price does day to day. Some investors specifically look for companies that pay steady dividends because it feels like a paycheck for simply owning the stock. On PSX, sectors like banks, fertilizer, and oil & gas exploration are well known for paying regular dividends.
The ex-dividend date is the date from which a share trades without entitlement to an announced dividend. A buyer on or after this date normally does not receive that dividend. It determines whether the buyer or seller receives the upcoming distribution. The market price may adjust around this date, although the actual movement also depends on market conditions.
The record date identifies eligible shareholders for a corporate entitlement. Book closure is the announced period during which the company closes or updates its shareholder register for that purpose. PSX investors must understand these dates when checking eligibility for dividends, bonus shares, rights or voting.
Market capitalization (or "market cap") is the market value of a company's outstanding ordinary shares. It measures the market value of shareholders' equity, not the value of the entire business including its debt. It tells you the size of the company you're buying into. A company with a market cap in the billions is a large, established player (often called a "large-cap"), while a smaller market cap usually means a younger or smaller company ("small-cap"). Large-caps tend to be steadier; small-caps can grow faster but often carry more risk.
These are just moods, dressed up in animal names. "Bullish" means people expect prices to go up — optimistic. "Bearish" means people expect prices to fall — pessimistic. You'll see these words everywhere in financial news, so it's worth knowing them even though they don't involve any math.
On PSX, most shares are originally issued at a fixed value set by the company — often 10 rupees — called the face value. This is different from the market price, which is what the stock actually trades for today based on supply and demand. Beginners often get confused seeing a stock trade at, say, 150 rupees when its face value is only 10 rupees — face value has almost nothing to do with what the stock is "worth" today. It mainly matters for accounting purposes and for calculating things like dividend percentages, which PSX companies often announce relative to face value rather than market price.
Bonus shares are extra, free shares a company gives to existing shareholders, instead of (or alongside) paying a cash dividend. For example, a 10% bonus means that for every 10 shares you own, you receive 1 additional share at no cost. Bonus shares feel like a gift, but they don't actually add new wealth on their own — the company's total value is simply split across more shares, so the share price usually adjusts downward to compensate. What they do matter for is comparing numbers over time: if you're looking at EPS or share price history and don't account for a bonus issue, the numbers will look like they dropped sharply when really the company just has more shares outstanding now. Always check if a bonus issue happened before comparing a stock's numbers across years.
Right shares are new shares a company offers to its existing shareholders, usually at a discounted price, when it wants to raise additional money. Unlike bonus shares, right shares aren't free — you have to pay for them if you choose to buy. A rights issue tells you the company needs fresh capital — sometimes for healthy reasons like expansion, sometimes to cover financial trouble, so it's worth understanding why before deciding to participate. If you don't buy your allotted right shares, your ownership percentage in the company gets slightly diluted, since more total shares now exist. Shareholders typically have the choice to either buy in, sell their "rights" entitlement, or let it lapse.
A circuit breaker is a safety limit PSX places on how much a stock's price can move in a single day. If a stock rises as far as it's allowed to, it's said to have hit its "upper lock" (or upper circuit); if it falls as far as it's allowed to, it's hit its "lower lock" (or lower circuit). Daily price limits are intended to reduce extreme price movements. Reaching an upper or lower limit does not necessarily mean trading has stopped: orders may continue to execute at the limit price, and the price may move away from the limit if matching orders become available.
Trading volume is the number of shares traded during a specified period. Volume helps show how active a stock is. A price move supported by unusually high volume may attract more attention than the same move on very little trading. Simple PKR example If 250,000 shares change hands today, daily volume is 250,000 shares.
Liquidity describes how easily shares can be bought or sold without causing a large price change. A liquid stock usually has frequent trades and a narrower bid-ask spread. An illiquid stock can be difficult to exit quickly at a fair price.
The bid is the highest current buying price and the ask is the lowest current selling price. Their difference is the bid-ask spread. The spread is an immediate trading cost. Wider spreads usually indicate lower liquidity or greater uncertainty. Simple PKR example If buyers bid PKR 99 and sellers ask PKR 100, the spread is PKR 1.
A market order asks the broker to buy or sell immediately at the best prices currently available. Execution is prioritized, but the final price is not guaranteed—especially in a fast or illiquid market.
A limit order specifies the maximum price you will pay when buying or the minimum price you will accept when selling. It gives price control, but the order may remain unfilled if the market never reaches the limit. Simple PKR example A buy limit at PKR 95 will not execute above PKR 95.
A capital gain is the increase in value realized or unrealized when an investment's price rises above its purchase price. It separates price appreciation from dividend income and helps investors understand where their return came from. Simple PKR example Buying at PKR 100 and selling at PKR 125 produces a PKR 25 gain per share before costs and taxes.
Total return combines the change in investment value with cash income such as dividends. It gives a more complete measure than price growth alone, particularly for high-dividend PSX stocks. Simple PKR example A share rises from PKR 100 to PKR 108 and pays PKR 7 dividend: total return is 15% before costs and taxes.
Diversification means spreading money across different companies, sectors or asset types rather than relying on one investment. It can reduce company-specific risk, although it cannot eliminate market-wide losses.
An exchange-traded fund is a pooled investment whose units trade on an exchange like shares. It may track an index, commodity, sector or another defined portfolio. An ETF can provide diversification through one tradable security, but investors should still check its objective, liquidity, fees and tracking performance.
A real estate investment trust pools investor money into income-producing real estate or real-estate projects and may distribute income to unit holders. A REIT offers listed real-estate exposure without directly purchasing property, but it carries property, financing, occupancy and market risks.
Revenue is the amount earned from selling goods or services before expenses are deducted. It is often called the top line. Revenue shows the scale and demand of the business, but growing sales do not automatically mean growing profit. Simple PKR example A company sells PKR 1 billion of products: revenue is PKR 1 billion before costs.
Net income is the profit remaining after operating costs, finance costs, taxes and other recognized expenses and income. It is the bottom line used in EPS and many valuation ratios, but investors should check whether unusual one-off items affected it.
The income statement reports revenue, expenses and profit over a period such as a quarter or year. It explains how the company moved from sales to operating profit and ultimately net profit.
The balance sheet shows assets, liabilities and equity at a particular reporting date. It helps investors assess what the company owns, what it owes and the accounting interest belonging to shareholders.
The cash flow statement records cash generated or used by operating, investing and financing activities during a period. Profit includes accounting estimates and non-cash items; cash flow shows how money actually moved.
Assets are economic resources controlled by a company, such as cash, receivables, inventory, investments, property and equipment. The amount and quality of assets affect financial strength and the company's ability to generate future income.
Liabilities are obligations owed to lenders, suppliers, employees, tax authorities and other parties. High or poorly structured obligations can reduce flexibility even when a company reports accounting profit.
Shareholders' equity is the residual accounting interest after liabilities are deducted from assets. It is used in book value, P/B and ROE calculations, but it is not the same as market capitalization.
Book value per share allocates ordinary shareholders' equity across outstanding ordinary shares. It is the denominator in the P/B ratio and is particularly useful for asset-based comparisons, while still being subject to accounting-value limitations. Simple PKR example PKR 5 billion equity divided by 100 million shares gives PKR 50 book value per share.
Gross profit is revenue remaining after subtracting the direct cost of goods or services sold. It shows the economic room available to cover operating expenses, finance costs and taxes.
Operating profit measures profit from operations before finance costs and taxes. EBIT is often used similarly, although classifications can differ between companies. It helps separate operating performance from financing and tax effects.
EBITDA means earnings before interest, taxes, depreciation and amortization. It is a simplified measure of operating earnings before those items. It is useful in EV/EBITDA comparisons, but it is not cash flow and ignores capital expenditure and working-capital needs.
Operating cash flow is cash generated or consumed by the company's main business activities. Comparing it with net profit can reveal whether reported earnings are being converted into cash.
Free cash flow is cash left after operating cash generation is reduced by capital expenditure needed for long-term assets. It can support debt repayment, dividends, buybacks or reinvestment, although definitions can vary.
Working capital is the difference between current assets and current liabilities. It indicates the short-term resources tied up in everyday operations. Too little can create liquidity pressure, while unusually high working capital may indicate inefficient use of resources.
Unconsolidated or standalone accounts show the parent company by itself. Consolidated accounts combine the parent with controlled subsidiaries and remove qualifying transactions within the group. A group with important subsidiaries can look very different on a consolidated basis. Investors should avoid mixing standalone figures with consolidated figures.
Annual figures cover a full financial year. Quarterly figures cover an interim period. TTM means trailing twelve months—the latest available twelve-month period assembled from recent reports. Using the same period basis prevents misleading comparisons between a full year and a single quarter.
Year-over-year compares a period with the corresponding period one year earlier. Quarter-over-quarter compares one quarter with the immediately preceding quarter. YoY comparisons reduce seasonal distortion, while QoQ comparisons show more recent momentum. Neither should combine overlapping annual and quarterly figures. Simple PKR example March-quarter revenue of PKR 12 billion versus PKR 10 billion a year earlier equals 20% YoY growth.
EPS tells you how much profit attributable to ordinary shareholders was earned for each share. Basic EPS normally uses the weighted-average number of ordinary shares outstanding during the reporting period. EPS is one of the most quoted numbers in investing because it's a simple way to measure how profitable a company is, on a per-share basis. A rising EPS year after year usually means the company is growing and doing something right. A falling EPS is often a warning sign worth digging into. It's also the building block for other important ratios (like P/E), so understanding EPS makes everything else easier to understand too.
Net profit margin tells you how much of a company's sales actually turns into real profit, after paying for everything — raw materials, salaries, rent, taxes, loan interest, all of it. It's shown as a percentage. For example, if a company sells goods worth 100 rupees and keeps 15 rupees as profit after all expenses, its net profit margin is 15%. Two companies can have the exact same sales but very different profit margins — one might be run efficiently and keep more of what it earns, while the other spends heavily and keeps very little. A higher margin generally means the company is better at converting sales into actual profit, and has more cushion to survive tough years, pay dividends, or reinvest in growth. Comparing margins between similar companies (like two cement companies, or two banks) is one of the simplest ways to see who's run better.
This is similar to net profit margin, but it only looks at profit from the company's core, day-to-day business — before things like taxes and loan interest are subtracted. It answers the question: "if we ignore taxes and debt for a moment, how profitable is the actual business itself?" It helps you separate "is this a good business?" from "does this company have too much debt or a bad tax situation?" A company can have a weak net profit margin because of heavy loan payments, even though its core business is actually healthy — operating margin reveals that. It's especially useful on PSX where many companies carry significant debt due to high interest rates.
Gross margin is the simplest layer of profitability. It only subtracts the direct cost of making the product or delivering the service (like raw materials) — nothing else. It shows how much money is left right after covering the basic cost of production. It tells you how much pricing power or production efficiency a company has before overhead costs come into play. A textile company with low gross margins is often stuck competing on price, while one with high gross margins may have a stronger brand or more efficient operations. It's a good early signal, especially when comparing companies in the same industry.
Intrinsic value is an estimate of what a share may be worth based on assumptions about the company's profits, cash flows, growth, risks and financial health. It is not an objectively known "true price," and different reasonable assumptions can produce different estimates. The market price of a stock can swing based on emotion, news, or short-term trends, but it doesn't always reflect what a company is genuinely worth. Comparing a stock's market price to its intrinsic value is the core idea behind value investing: if the market price is well below intrinsic value, the stock may be undervalued; if it's well above, it may be overpriced. Every ratio in this section — P/E, P/B, P/S — is really just a different shortcut for estimating this same underlying idea.
Enterprise value estimates the value of the operating business attributable to both equity and debt providers, after allowing for available cash. It supports comparisons between companies with different capital structures and is used in EV/EBITDA. Simple PKR example A PKR 50 billion market cap plus PKR 20 billion debt minus PKR 5 billion cash gives PKR 65 billion enterprise value.
Margin of safety is the gap between an investor's estimated intrinsic value and the market price, usually expressed as a percentage of estimated value. It provides room for estimation errors and unexpected business problems, but it cannot make an inaccurate valuation safe. Simple PKR example Estimated value PKR 150 and market price PKR 105 imply a 30% margin of safety.
DCF estimates value by forecasting future cash flows and converting them into today's value using a discount rate. It connects value to cash-generation expectations, but small changes in growth, terminal value or discount rate can materially change the answer.
A discount rate converts expected future money into present value and reflects time, uncertainty and required return. A higher discount rate reduces estimated present value. The chosen rate must match the type and risk of the cash flow being valued.
The P/E ratio compares a company's share price with its earnings per share. A P/E of 8 means the market price equals eight times the company's current annual earnings per share. People sometimes describe this as eight years of earnings, but it is not a true payback period because earnings can change and are not necessarily distributed to shareholders. P/E is one of the fastest ways to judge if a stock looks cheap or expensive compared to its own profits, or compared to similar companies. A lower P/E can mean the stock is undervalued (or that the market has doubts about its future). A higher P/E can mean investors expect strong growth ahead (or that the stock is simply overpriced). On PSX, average P/E ratios tend to run lower than in developed markets like the US, so a "high" P/E here might look completely normal for say, the US stock market.
Book value is the accounting value of shareholders' equity shown on the balance sheet. The P/B ratio compares the share price with book value per share. Book value is not necessarily the amount shareholders would receive in a liquidation because recorded asset values can differ from sale values and liquidation costs may apply. It's especially useful for asset-heavy businesses like banks, insurance companies, or manufacturers, where a big chunk of the company's worth comes from physical assets sitting on its books. A P/B below 1 can mean you're paying less than what the company's assets are technically worth on paper — though it's worth checking why the market is pricing it that low before assuming it's a bargain.
This ratio compares the share price to how much revenue (total sales) the company generates per share — profit isn't part of the equation at all here. It's useful for companies that aren't profitable yet, or whose profits swing a lot from year to year, since P/E can't really be used for those (you can't divide by zero or negative earnings in any meaningful way). P/S lets you still compare how the market is valuing a company's sales, even when profit numbers are messy or unavailable.
Dividend yield compares annual dividend per share with the stock's current market price. A return calculated using your original purchase price is called yield on cost. It helps you compare stocks the way you might compare a bank's savings return — as a percentage return, rather than just a rupee amount. If a stock's dividend yield is 8%, it means you're getting the equivalent of an 8% cash return every year just from dividends, regardless of what the share price does. On PSX, sectors like banking, fertilizer, and oil & gas exploration often carry noticeably higher dividend yields than growth-focused sectors like tech or textiles.
This ratio compares a company's interest-bearing debt with shareholders' equity. Data providers sometimes use different debt definitions, so investors should check whether the figure includes only borrowings or all liabilities. Borrowing isn't automatically bad — companies often borrow to grow faster. But too much debt means a big chunk of profit has to go toward paying interest, and it makes the company more fragile if sales slow down or interest rates rise. This is especially important on PSX, where interest rates in Pakistan have been high in recent years, making heavy borrowing more expensive and riskier than it would be in countries with lower rates. Comparing this ratio between similar companies (like two cement or steel companies) helps you see who's financially more cautious versus who's taken on more risk.
The current ratio checks whether an ordinary operating company has enough short-term assets to cover obligations due within about one year. It is generally not meaningful for banks and many financial institutions because their balance sheets work differently. Think of it like checking whether someone has enough money in their wallet and bank account this month to pay this month's bills — separate from whether they own a house or have long-term savings. A company can look successful on paper but still run into trouble if it can't pay its near-term bills on time. A current ratio above 1 generally means the company can cover its short-term obligations; well below 1 can be a warning sign worth investigating further.
The quick ratio is a stricter version of the current ratio. It measures the same thing — can the company pay its near-term bills — but leaves out inventory (unsold stock sitting in a warehouse), since inventory can be slow or difficult to turn into actual cash quickly. For companies where inventory piles up or is hard to sell quickly (like textiles or manufacturing), the quick ratio gives a more honest picture than the current ratio alone. It answers a slightly tougher question: "if this company had to pay its short-term bills right now, without selling off its inventory, could it manage?"
This ratio checks how easily a company can pay the interest on its loans, using the profit it earns from its core business. If a company barely earns enough to cover its interest payments, even a small drop in profit could put it in real financial trouble. This is a particularly important number to check on PSX right now, since many companies carry loans, and Pakistan's interest rates have been high — meaning interest payments take a bigger bite out of profits than they would in a lower-rate environment. A higher interest coverage ratio means more safety cushion; a ratio close to 1 (or below) is a red flag.
EPS growth simply measures how much a company's earnings per share has increased (or decreased) compared to a previous period — usually year over year. If a company earned 10 rupees per share last year and 12 rupees per share this year, that's 20% EPS growth. A company can have a decent EPS today, but what really excites investors is whether that number is heading up over time. Consistent EPS growth usually means the business is expanding, becoming more efficient, or both — and it's one of the biggest drivers of a rising share price over the long run. A stock with a stalling or shrinking EPS, even if it looks "cheap" on paper, can be a warning sign rather than a bargain.
Revenue growth measures how much a company's total sales have increased (or decreased) compared to a previous period, regardless of profit. Revenue is the top of the chain — before any costs, taxes, or interest are subtracted. Strong revenue growth means more customers are buying, prices are rising, or the company is expanding into new markets. It's worth checking alongside EPS growth, because a company can grow revenue while profit stays flat or even shrinks (if costs are rising just as fast). Seeing both numbers grow together is a healthier sign than revenue growing alone.
CAGR is a way of smoothing out growth over several years into a single, easy-to-compare yearly percentage. Growth rarely happens in a perfectly straight line — some years are strong, some are weak — so CAGR gives you the "average annual pace" as if it had grown steadily every year. It's especially useful when comparing companies over a 3, 5, or 10-year period, since a single year's growth number can be misleading (a company might have one unusually good or bad year that doesn't reflect its real trend). CAGR gives a cleaner, longer-term picture of how consistently a company has been growing.
CAR measures how much of a bank's own money (capital) it's keeping as a safety cushion, compared to the risks it has taken on through loans and investments. Regulators (like the State Bank of Pakistan) set a minimum CAR that every bank must maintain, precisely so banks don't over-lend without enough of their own money backing it up. Banks work differently from regular companies — they take deposits from the public and lend that money out, which means they're naturally more exposed to risk if borrowers don't repay or the economy slows down. A healthy CAR means the bank has enough of a buffer to absorb losses without collapsing or needing a bailout. When comparing PSX-listed banks, a bank sitting comfortably above the regulatory minimum is generally seen as safer than one hovering just at the edge.
NII is the difference between interest income and interest expense. It is a bank's core net interest income, but it is not the same as net profit because operating costs, provisions, taxes and other income or expenses still remain. For a regular company, we look at sales and profit margins. For a bank, NII plays a similar role — it's the clearest sign of whether the bank's core lending business is healthy and growing. Rising NII usually means the bank is either lending more, charging better rates on loans, or paying less on deposits — all generally positive. Since Pakistan's interest rates move around a lot, NII can shift quickly from year to year, so it's worth watching the trend rather than just one year's number.
NIM takes the Net Interest Income (NII) we just covered and expresses it as a percentage of the bank's total earning assets (mainly loans and investments). It answers: "for every rupee of assets the bank has out there earning money, how much net interest is it actually making?" NIM lets you compare banks of very different sizes fairly. A huge bank might have a bigger NII simply because it's bigger — NIM strips out size and shows which bank is actually more efficient at converting its lending business into profit. A rising NIM usually means the bank is managing its interest rate spread well; a shrinking NIM can signal pressure from competition or rate changes.
An NPL is a loan where the borrower has stopped paying back on time — usually significantly overdue. The NPL ratio shows what percentage of a bank's total loans have gone bad this way. This is one of the clearest warning signs of a bank's loan quality. A low NPL ratio means the bank is lending carefully and borrowers are paying back reliably. A rising NPL ratio means more borrowers are struggling to repay — which can eat into profits and, in bad enough cases, threaten the bank's stability. It's one of the first things analysts check when evaluating any PSX-listed bank.
ADR shows what percentage of a bank's total deposits it has lent out as loans (advances). This shows how actively a bank is putting depositors' money to work through lending versus keeping it parked in safer, lower-return places like government bonds. A very high ADR can mean the bank is lending aggressively (more profit potential, but also more risk). A very low ADR can mean the bank is playing it safe but possibly not maximizing returns. The State Bank of Pakistan also watches this ratio closely for the banking sector overall.
ROE measures how much profit a company generates using the money shareholders have invested in it. It's one of the best single numbers for judging how well a company's management uses the owners' money to generate profit. A consistently high ROE usually signals a well-run, efficient company — though it's worth also checking debt levels, since heavy borrowing can artificially inflate ROE.
ROA measures how much profit a company generates using everything it owns — cash, buildings, equipment, inventory, all of it — regardless of whether that was paid for with the owners' money or with borrowed money. It tells you how efficiently a company is using its total resources to make a profit, without caring how those resources were funded. This makes ROA especially useful for comparing companies in asset-heavy industries — like cement, steel, or banking — where two companies might own similar-sized factories or asset bases, but one squeezes far more profit out of them than the other. A low ROA can mean a company is sitting on assets that aren't being used productively.
ROCE measures how efficiently a company generates operating profit from capital employed in the business. The broader term ROC can be defined differently and may refer to return on invested capital (ROIC), so the formula should always be checked. ROE only looks at profit generated from the owners' own money. ROCE goes a step further and looks at profit generated from everything the company is using to run the business, including debt. This makes it a fairer comparison between two companies where one relies more on borrowed money than the other — a company might show a high ROE simply because it's borrowed heavily, but ROCE reveals whether it's genuinely using all its resources (borrowed or owned) efficiently.
ROI measures how much profit or loss you've made on an investment, compared to what you originally put in. It's not specific to stocks — people use this term for almost any kind of investment (property, business, gold, anything). It's the simplest way to check "did this investment actually pay off, and by how much?" If you bought a stock for 100 rupees and it's now worth 130 rupees (including any dividends received), your ROI is 30%. It's a personal performance number — it tells you about your results, not necessarily about the company itself the way other ratios do. Quick Summary: The "Return" Family ROE — return on owners' money only (equity) ROA — return on everything the company owns (total assets) ROCE — return on total capital employed (equity + debt) ROI — your personal return on what you invested, at any point in time
The Securities and Exchange Commission of Pakistan is the regulator responsible for Pakistan's corporate sector and capital-market regulatory framework. Investors should distinguish the regulator from PSX, brokers and depository or clearing institutions.
The Central Depository Company maintains electronic securities records and related depository services, replacing reliance on physical share certificates for deposited securities. Understanding custody helps investors know where ownership records are maintained and why broker statements should be reconciled.
The National Clearing Company of Pakistan provides clearing, settlement and related capital-market services. It is part of the infrastructure that processes obligations arising from trades. Settlement rules can change, so current official guidance should be checked.
Margin is money you borrow from your broker to buy more shares than you could afford with just your own cash. It works a bit like a loan — you put in a portion of the money yourself, and the broker fronts the rest, using your shares as collateral. Trading on margin lets you buy a bigger position than your own money alone would allow, which can amplify your gains — but it just as easily amplifies your losses, since you still owe the borrowed amount even if the stock falls. It's a more advanced and riskier way of investing, generally best understood thoroughly before using it, and definitely not something beginners should start with.
Leverage is the general concept behind margin trading — using borrowed money to control a larger investment than your own capital alone would allow. If you put in 100,000 rupees of your own money and borrow another 100,000 to invest a total of 200,000, you're using 2x leverage. Leverage is a double-edged sword: it multiplies both profits and losses by the same factor. A 10% gain on a 2x-leveraged position becomes a 20% gain on your own money — but a 10% loss becomes a 20% loss too. The more leverage used, the faster things can go wrong if the market moves against you, so it's a concept worth fully understanding before ever using it.
A margin call happens when the value of your leveraged position falls enough that your broker asks you to add more money (or sell part of your position) to bring your account back to the required safety level. A margin call is essentially a warning that your losses have eaten into the safety cushion your broker requires. If you can't add more funds when asked, the broker has the right to sell your shares automatically to cover the shortfall — often at an unfavorable moment. This is one of the biggest risks beginners underestimate when they first try trading on margin.
NAV is the net asset value attributable to one mutual-fund unit. A fund's offer or redemption price may differ from NAV when an applicable sales load, redemption charge or other adjustment is included. NAV is how you know what you're paying for (or selling) when you invest in a mutual fund, similar to how a share price works for individual stocks. Unlike stock prices, which change constantly throughout the trading day, NAV is usually calculated and published once per day, based on the closing value of everything the fund holds.
A SIP is a way of investing a fixed amount of money into a mutual fund at regular intervals — say, every month — instead of investing one large lump sum all at once. Investing small, regular amounts makes it easier to build a habit and doesn't require having a large sum ready upfront. It also naturally averages out your purchase cost over time — you end up buying more units when prices are low and fewer units when prices are high, without having to time the market yourself. This makes SIPs a popular, beginner-friendly way to start investing in mutual funds.
The expense ratio is the annual fee a mutual fund charges to manage your money, shown as a percentage of your total investment in the fund. This fee is deducted automatically from the fund's returns, so a higher expense ratio quietly eats into your actual gains every single year, even in years the fund performs well. Over many years, a seemingly small difference in expense ratio (say, 1% versus 2%) can add up to a meaningfully different amount of money, so it's worth comparing this number between similar funds before choosing one.
The PEG ratio takes the P/E ratio we covered earlier and adjusts it for how fast the company is growing. A stock can have a high P/E and still be a reasonable buy if it's growing fast enough to justify that price — PEG helps check exactly that. P/E alone can be misleading because companies grow at different rates. A PEG near 1 is sometimes used as a rough reference point, but it is not a universal valuation rule. PEG is generally not meaningful when earnings or the expected growth rate are zero or negative, and results depend heavily on the growth estimate used.
This ratio compares a company's total value (including its debt) to its core operating earnings, before interest, taxes, depreciation, and amortization are subtracted (that's what EBITDA stands for). Unlike P/E, EV/EBITDA incorporates debt and cash, making it useful for comparing similar operating companies with different financing structures. It should normally be compared within the same industry and is generally unsuitable for banks and insurers.
Beta measures how much a stock's price tends to swing compared to the overall market (like the KSE-100). A beta of 1 means the stock roughly moves in line with the market. A beta above 1 means it swings more than the market — both up and down. A beta below 1 means it's calmer than the market. Beta describes historical sensitivity to a selected market index over a chosen period. It does not measure every type of risk and can change when the time period, data frequency or benchmark changes.
The payout ratio shows what percentage of a company's profit it pays out to shareholders as dividends, versus how much it keeps to reinvest in the business. A very high payout ratio (close to or above 100%) can mean the company is paying out more than it comfortably earns, which may not be sustainable long-term. A lower payout ratio means the company is keeping more profit to grow the business, which can be good for long-term growth but means smaller dividend checks today. Neither is automatically "better" — it depends on whether you're investing for income or for growth.
Free float refers to the portion of a company's total shares that are actually available for the public to freely buy and sell — excluding shares locked up with founders, the government, or other large stakeholders who aren't actively trading them. A low free float means fewer shares are actually moving around in the market, which can make the stock's price more volatile and easier to swing on relatively small trades. It also affects how a stock is weighted in indexes like the KSE-100, since index weightings are often based on free float rather than total shares.
Definitions are simplified for beginners. Formula conventions can vary between companies and providers. Verify current Pakistan-specific rules, index methodology, settlement practices and regulatory requirements through PSX, SECP, SBP, CDC and NCCPL.
This guide is educational and does not constitute financial, investment or legal advice. Investing involves risk, including possible loss of capital.
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