Guide to Analysing Companies

SFO
See serious fraud office.
Shadow accounting
A form of accounting used for internal purposes when a
company is unable to ascribe something accurately, for
example, the credit for a particular sale. If, say, two agents
are equally involved in the sale of an insurance contract to a
customer, then the insurance company may add the full value
of the contract to each agent’s account. For the purposes of the
profit-and-loss account, of course, this would be double
counting.
S
SHADOW ACCOUNTING
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Share
A word used interchangeably with stock to denote part own-
ership of a company. Shares are granted in exchange for
capital and can be traded on a stock exchange or some-
times over the counter. Those who own shares are said to
have equity in a company. Together with bonds and other
forms of debt, shares form a company’s capital.
Shareholder value
The idea that all business activity (at least that of quoted com-
panies) should be directed towards maximising the value of
shareholders’ equity in a company. It is an idea that arouses
strong support and equally strong antagonism. The notion of
shareholder value took on greater meaning when the practice of
granting share options to managers became widespread,
particularly in the United States. Institutional shareholders had
sympathy with the view, espoused by managers, that it was in
everybody’s interest to maximise the share price and thus share-
holder value. What was good for one must be good for the
other. It soon became apparent, however, that the interests of
shareholders and managers did not always coincide. As the
corporate scandals at the start of the 21st century showed, man-
agers were prepared to go to extraordinary lengths (sometimes
even as far as fraud) to maintain the share price so that their
options were worth more. When the fraud was discovered, the
pack of cards collapsed and everybody lost out.
Share option