Guide to Analysing Companies

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SPECIAL-PURPOSE VEHICLE
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Speculation
The purchase of a financial asset (or the right to it) with the
aim of making a profit. Although it has a bad name, specula-
tion is essential to the proper functioning of a financial market.
Speculators will assume a certain amount of risk in anticipa-
tion of making a gain, but, unlike most gamblers, they will take
steps to reduce the chances of a loss. They hedge their losses
by selling short, taking out stop orders and trading in
futures and options. In its purest form, speculation assumes
that a proposition can be analysed and measured; it differs from
investment mainly in the degree of risk that a speculator is pre-
pared to take on.
Spin off
The hiving off of a subsidiary by a parent corporation, tradi-
tionally by giving shares in the subsidiary to shareholders of
the parent in proportion to their existing holdings. Often this is
done through a special dividend. Parent companies can also
spin off a subsidiary by selling it to its managers (through a buy-
out) or as part of some other form of share-ownership plan for
employees. Many subsidiaries that are spun off later become
listed companies in their own right.
Split-capital investment trust
An investment trust (known in the United States as a
closed-end fund) with a predetermined life whose equity
is divided into two or more main classes of share. Holders of
income shares receive all or most of the income earned by the
company during its lifetime, as well as a predetermined propor-
tion of the capital value when the company is wound up.
Holders of capital shares receive no income but are entitled to
the assets remaining after the income shares have been paid
off. zero-coupon preference shares, as the name sug-
gests, pay no income but rank higher than either income or