Guide to Analysing Companies

Berne Union
An association of providers of export credit insurance.
Founded in 1834, the Berne Union aims to promote “the interna-
tional acceptance of sound principles of export credit and insur-
ance”. The union’s members operate in more than 40 countries
worldwide, doing business with individual exporters requiring
credit or insurance.
Beta
A measure of the volatility of a share, unit trust or
portfolio of investments. The beta coefficient is a relative,
not an absolute, measure of risk. It defines the relationship
between the returns from a share and those made from the
stockmarket as a whole, as measured by an index such as
the s&p 500. Beta is used by investors to assess the price (and
therefore relative value) of a particular share or portfolio. The
B
BETA
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stockmarket’s beta is always 1.0, so a share with a beta of 1.5
would be expected to rise by 15% when the market increases by
10%, or to fall in value by 15% when the market falls by 10%. A
weakness of beta is that the results can vary markedly depend-
ing on the data used and the period taken. For this reason, it is
usually used for portfolios of shares over a five-year period.
Beta is often used by investment managers in conjunction
with alpha, an estimate of the expected return from a stock
or portfolio of shares. If, say, Microsoft had an alpha of 1.25, it
could be expected to rise in value by 25% when the return from
the market was zero. But if its beta were 1.5, and the market as a
whole stood to rise by 10%, then Microsoft’s shares would be
expected to increase by a total of 40% (25% plus 15%).
Bid
The highest price that a prospective purchaser is prepared to
pay at that moment for something, be it a company, an impres-
sionist painting, or a security.
Bid costs
The costs incurred by a company in making a takeover bid
for another; not to be confused with the costs of an auction.
These include the fees of a panoply of advisers such as invest-
ment bankers, lawyers and accountants. Unless a bidder comes
to some other arrangement, such costs have to be borne
whether a bid is successful or not.