Guide to Analysing Companies

Correspondent bank
Before banks opened their own branches around the world,
they managed their international business by setting up a
network of loose relationships with other banks in different
countries. The correspondent banks provided services in their
home market for the others in the network, and vice versa.
Cost of capital
The rate of return that a company could earn if it chose
another business with an equivalent risk – in other words, the
opportunity cost of employing the capital where it is.
Measures of this kind are used to decide whether investments
are worth making or businesses are worth starting up. The cost
of capital is also the weighted or average cost of a company’s
debt and various types of equity: ordinary shares, pref-
erence shares, debentures, bonds, loans and so on. 
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Countertrade
See barter.
Coupon
A piece of paper attached to a bearer security giving the
bearer the right to the income (interest or dividend) that
comes with the security. To collect the income due, the bearer
must detach the coupon and present it to the paying agent of
the issuer of the security.
The word “coupon” is also used to refer to the interest rate
itself. So a bond with a 10% coupon will pay $10 for every $100
of face value per year, usually in two six-monthly instalments.
Registered bonds, many of which pay interest through elec-
tronic transfers, are gradually replacing coupon bonds, particu-
larly in the United States, although the term lives on. (See
registered security.)
Covenant
A promise contained in a trust deed or other agreement in-
volving the issue of securities that a certain thing will or will
not be done. Designed to protect the lender’s interest, covenants
cover, for example, the split between debt and equity for a
capital raising, and the frequency with which dividends or
interest are to be paid.
Cover
Funds to provide protection against loss (as in insurance
cover), or to guarantee payment of a liability (as in divi-
dend cover). Dividend cover refers to the number of times
that a company’s earnings per share covers its dividend per
share.