Guide to Analysing Companies

Common stock
US terminology for ordinary share.
Compensating balance
An amount that a customer is asked to deposit with a bank
when the bank makes a loan to the customer. On the surface
this sounds rather odd. Why borrow money from a bank
simply in order to put it back into the bank? The rationale for
compensating balances lies in a time when there were strict
limits on the rate of interest that could be charged to
lenders. Banks that wanted to charge more would insist that, in
addition to paying the top rate, borrowers must deposit a
certain amount (interest free) with the bank. This free balance
would compensate for the interest payments that the bank was
unable to collect on the loan.
Compliance officer
An employee of a securities firm who is appointed to make
sure that the firm follows the (increasingly complex) rules laid
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down by the regulators of financial markets. Failure to comply
with such rules can lead to the guilty division, or sometimes the
whole firm, being banned from carrying on its business. So even
during tough times, the compliance departments of invest-
ment banks and securities firms invariably escape cost
cutting, especially since tightened rules following excesses
during the dotcom bubble of the late 1990s forced banks and
their corporate customers to be more aware of conflicts of
interest.
Composite insurer
An insurance company which sells both casualty insurance
(against damage to household contents, automobiles, travel
plans and so on) and life insurance. In theory, this gives such
companies a good spread of business and makes them less
liable to the effects of calamities such as floods and hurricanes.
In practice, the premiums they charge for cover, especially on
bigger risks, and the cost to them of reinsurance, are highly
cyclical, so their profits still go up and down.
Concert party
A group of investors who act together to try to gain control of a
company. Each buys a small stake which, when combined with
the others, gives them control. In most jurisdictions with devel-
oped financial markets, parties of investors seeking to change a
company’s management or force it somehow to alter course
must make their intentions clear. It is illegal for those acting in
concert (and in secret) to manipulate a company’s share price
for their own gain.