Guide to Analysing Companies

Part of a remuneration package designed to motivate managers
and to encourage senior employees to stay with their company.
Share options give employees an opportunity to buy shares in
the company they work for at some future date. The price at
which they can buy the shares is fixed when the option is
granted and is favourable at the time. But there is no guarantee
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that it will remain that way. Indeed, the system is open to abuse
in that many boards of directors, seeing the value of their
options vanish as the share price falls, simply re-price them at
more favourable rates.
Share premium
The amount by which the proceeds of an issue of securities
exceeds the nominal value of the issue. In the issuer’s accounts
the amount appears in the share premium reserve.
Shelf registration
A system in the United States that allows companies to file in
advance with the sec details of the securities they intend to
issue to investors over the next two years. So, instead of having
to wait while their plans are cleared, a company can pull issues
off the shelf as and when it needs them. With a minimum
amount of updating from quarter to quarter, companies have
much of the flexibility they need. The sec established the prac-
tice in the 1980s under Rule 415, and such issues are sometimes
called Rule 415 issues.
Short
Usually called shorting or selling short. Investors agree to sell
securities that they do not already own. They are betting
that the price of the securities will fall by the time they have
to be delivered. If they do, the sellers make a profit on the deal.
If they do not, the sellers must buy them at a premium and
therefore lose money on the deal. Short sellers often borrow
stock from other investors to fulfil their end of the bargain.
(See also securities lending.)