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1.3.2 - Formulas

Interactive Audio Lesson

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Understanding Dividends

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Teacher
Teacher

Today, we are going to explore dividends, which are payments made by a corporation to its shareholders. Can anyone tell me what a dividend is?

Student 1
Student 1

Isn't it the money you earn from owning shares?

Teacher
Teacher

Exactly! Dividends are a return on your investment. Now, the formula to calculate a dividend is `Dividend = (Dividend% × Face Value) / 100`. Can anyone give me an example of how this works?

Student 2
Student 2

If a share has a face value of ₹100 and a dividend percentage of 12%, then the dividend would be ₹12.

Teacher
Teacher

Great job! So when you see the dividend percentage, remember that it’s just a part of the face value. Let’s visualize this with a mnemonic: **DFD** - Dividend = Face Value * Dividend Percentage/100.

Student 3
Student 3

So higher percentages mean higher dividends, right?

Teacher
Teacher

Yes! Dividends can vary based on company performance and policies. Let's summarize: Dividends are a way companies distribute profits back to shareholders, calculated using a simple formula involving face value and the percentage.

Calculating Investment

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Teacher
Teacher

Next, let’s look at how we calculate our total investment in shares. The formula is `Investment = Market Value × Number of Shares`. Can someone explain what this means?

Student 4
Student 4

If I buy 10 shares at ₹120 each, my investment would be ₹1200.

Teacher
Teacher

Exactly! That's how simple it is. Remember with the acronym **MVS** - Market Value times Shares gives you Investment. Can anyone think of a situation where this would help?

Student 1
Student 1

When I plan to invest in stocks, I can just multiply the shares I want by the current price!

Teacher
Teacher

Correct! Calculating your investment accurately helps in planning your finances effectively. Let’s summarize: Investment in shares is calculated by multiplying the market value of a share by the number of shares purchased.

Understanding Yield Percentage

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Teacher
Teacher

Now, let’s delve into yield percentage, which measures the return on investment. The formula is `Yield% = (Dividend / Market Value) × 100`. What does this tell us?

Student 2
Student 2

It tells us how much return we make based on what we pay for the shares!

Teacher
Teacher

Right! Yield helps investors understand their gains relative to their investments. Using the acronym **DRP** - Dividend Return Percentage, helps you remember this idea clearly. Can anyone think of why this is important?

Student 3
Student 3

It helps compare different stocks to see which one gives better returns!

Teacher
Teacher

Excellent point! In summary, yield percentage allows us to compare the profitability of different investments in the stock market.

Introduction & Overview

Read a summary of the section's main ideas. Choose from Basic, Medium, or Detailed.

Quick Overview

This section outlines essential formulas related to shares, dividends, and yields in commercial mathematics.

Standard

The formulas presented encompass the calculations for dividends, investments in shares, and yield percentage, crucial for understanding commercial mathematics. Through practical examples, these formulas become applicable for real-world scenarios in investing and finance.

Detailed

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Audio Book

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GST Formula

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● GST = Taxable Amount × GST Rate

Detailed Explanation

The GST formula calculates the amount of Goods and Services Tax that needs to be paid based on the taxable amount and the GST rate. To find out the total GST, you simply multiply the taxable amount (the price of goods or services subject to GST) by the GST rate (a percentage). This gives you the GST amount that will be added to the price.

Examples & Analogies

Imagine you are buying a new smartphone that costs ₹20,000, and the GST rate is 18%. To find the GST, you multiply ₹20,000 by 0.18 (which is the same as 18%). So, ₹20,000 × 0.18 = ₹3,600. Thus, you would pay ₹3,600 as GST on your smartphone.

Final Price Calculation

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● Final Price = Cost Price + GST

Detailed Explanation

The formula for calculating the Final Price allows you to find out how much you will actually pay for a good or service after including GST. You start with the Cost Price (the actual price before any tax) and add the GST calculated from the previous formula to this cost. The result is the total price you need to pay.

Examples & Analogies

Continuing with the smartphone example, if the Cost Price of the phone is ₹20,000 and the GST is ₹3,600, the Final Price would be: ₹20,000 + ₹3,600 = ₹23,600. This is the total amount you need to pay to buy the phone.

Input Tax Credit (ITC)

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● Input Tax Credit (ITC): Credit received for tax paid on purchases.

Detailed Explanation

Input Tax Credit is a facility that allows businesses to reduce the tax they need to pay on their sales by considering the GST they have already paid on their purchases. This means if a business buys goods and pays GST, they can use that GST amount to offset the GST they collect from their customers when selling their products.

Examples & Analogies

Think of it like storing water in a tank. When you fill up your tank (paying GST on your purchases), you can then use that water when needed (using ITC) to make sure you’re not wasting resources. For instance, if a shopkeeper buys goods and pays ₹1,800 in GST, and later sells them and has to collect ₹2,700 in GST, they can apply this ITC to lower what they owe.

Net GST Payable

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● Net GST Payable = Output GST – Input GST

Detailed Explanation

This formula helps determine how much actual GST a business needs to pay to the government after accounting for the GST it has already paid on its purchases (Input GST). To find the Net GST Payable, you subtract the Input GST from the Output GST (the GST collected from customers). If the Output GST is greater, then you owe money; if it is equal to or less, you may even get a refund.

Examples & Analogies

Imagine you sell lemonade. You collect ₹2,700 in GST from selling your lemonade, but you also paid ₹1,800 in GST for the ingredients. Your Net GST Payable would be ₹2,700 - ₹1,800 = ₹900. This means you need to pay ₹900 to the government, like settling your tab after a party!

Example Calculation

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Example
A shopkeeper buys goods worth ₹10,000 at 18% GST and sells them for ₹15,000.
● Input GST = ₹10,000 × 18% = ₹1,800
● Output GST = ₹15,000 × 18% = ₹2,700
● Net GST = ₹2,700 – ₹1,800 = ₹900

Detailed Explanation

This example illustrates how to apply the formulas we just learned. The shopkeeper buys goods worth ₹10,000, and the GST rate is 18%. The Input GST is calculated as ₹10,000 × 0.18, which equals ₹1,800. When the shopkeeper sells the goods for ₹15,000, the Output GST is ₹15,000 × 0.18, resulting in ₹2,700. The net amount payable to the government is calculated by subtracting the Input GST from the Output GST: ₹2,700 - ₹1,800 equals ₹900.

Examples & Analogies

This is similar to running your own lemonade stand! You buy lemons and sugar for ₹10,000 and pay ₹1,800 in GST. When you sell the lemonade, you charge ₹15,000 and collect ₹2,700 in GST. By subtracting what you paid from what you collected, you find you owe ₹900 in taxes to the government—just like keeping track of your earnings and expenses to know how much profit you made.

Definitions & Key Concepts

Learn essential terms and foundational ideas that form the basis of the topic.

Key Concepts

  • Dividend Calculation: The formula for determining dividends based on the dividend percentage and face value of the shares.

  • Formula: Dividend = (Dividend% × Face Value) / 100

  • Investment Calculation: Understanding how to calculate the total investment made in shares based on the market value and quantity of shares purchased.

  • Formula: Investment = Market Value × Number of Shares

  • Yield Calculation: Yield represents the return on investment as a percentage of the market value.

  • Formula: Yield% = (Dividend / Market Value) × 100

  • Overall, mastering these formulas is essential for effective financial decision-making in real-life investment scenarios.

Examples & Real-Life Applications

See how the concepts apply in real-world scenarios to understand their practical implications.

Examples

  • If you own a share with a face value of ₹100 and receive a dividend of 12%, you earn ₹12.

  • For a share purchased at ₹120 with 5 shares, your total investment is ₹600.

  • If the dividend for those shares is ₹12, your yield percentage would be (12 / 120) * 100 = 10%.

Memory Aids

Use mnemonics, acronyms, or visual cues to help remember key information more easily.

🎵 Rhymes Time

  • If shares you see, dividends should be, just take face value, and times by percentage with glee!

📖 Fascinating Stories

  • Imagine a farmer who plants seeds (shares). As the harvest (dividend) comes in, he counts the yield (return) based on how much he planted (investment).

🧠 Other Memory Gems

  • D for Dividend, M for Market Value, I for Investment - Remember DMI when calculating your shares!

🎯 Super Acronyms

DFD - Dividend from Face value and Dividend percentage Formula!

Flash Cards

Review key concepts with flashcards.

Glossary of Terms

Review the Definitions for terms.

  • Term: Dividend

    Definition:

    A portion of a company's earnings distributed to its shareholders, usually expressed as a percentage of the face value of the share.

  • Term: Market Value

    Definition:

    The current price at which a share is traded in the market.

  • Term: Investment

    Definition:

    Total amount invested in purchasing shares, calculated as market value multiplied by the number of shares.

  • Term: Yield

    Definition:

    The percentage return on investment calculated from the dividend received relative to the market value of the share.