Guide to Analysing Companies

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the result that agents’ commissions have been greatly
reduced. Hopes that intermediaries of any sort could be cut out
by using the internet led to the launch of numerous such ser-
vices during the dotcom boom. Many have since closed or
merged with others, but the idea lives on and is increasingly
popular with many consumers.
Direct debit
An instruction from a bank’s customer asking the bank regu-
larly to debit his or her account with the amount demanded
by a named creditor. Direct debits are designed to make it easy
to pay regular but varying bills (like those of utilities). 
Dirty price
A price for a bond which includes the amount of interest
that has accrued on the bond since the date of the last interest
payment. (See also clean price.)
Discount
As a verb it means to sell at a reduced price; as a noun it refers to
the reduction in price itself. A cash discount is a reduction in
price given to someone who pays immediately for goods in cash
or a cash equivalent. A trade discount is a reduction in price given
to someone who is in the same trade as the vendor – for example,
by a wholesaler of garments to a fashion boutique. When a bill is
sold for a discount to its face value, the discount represents the
interest forgone between the time of the sale and the date that
the bill matures. A bond trading at less than 80% of its par
value is said to be trading at a deep discount. This usually
means that the coupon (that is, rate of interest) is far
below the market rate or the quality of the bond’s credit is in
question.
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Discount rate
The rate at which a central bank discounts government
bonds and other first-class debt instruments to commercial
banks; or the rate at which central banks lend to commercial
banks, using government bills as collateral. In securities
markets, it is also the rate of interest used to determine the
present value of a stream of future income. In theory, the rate
should rise the riskier the source of the stream of income
becomes. Assume the rate is 10%; then ask what value today
will produce $1,000 in a year’s time at that rate. The answer is
$909 ($1,000 divided by 1.1, which is the figure you get if you
compound 1 at the rate of 10% for a year). The method is used
by analysts to compare one income stream with another, or
to weigh up the attractions of different types of investment.
Discount window
A facility provided by central banks whereby commer-
cial banks can lodge their surplus reserves or top up their re-
serves against the security of their top-quality assets.