Guide to Analysing Companies

Due date
The date on which a payment of interest or principal
becomes due.
Due diligence
The thorough search of a business done either by a potential
manager of a new issue of the company’s securities, or by a
company intending to take over the business through a merger
or a sale. The purpose of due diligence (normally carried out by
accountants, lawyers or financial experts) is to check that the
company’s sales figures and general performance are as it
claims they are. In the case of a possible takeover this is a de-
liberate exercise. The company carrying out the due diligence
has made no binding commitment to buy the business that it is
examining. Should it back out of the negotiations, it may have
obtained commercially-sensitive information for nothing. Nev-
ertheless, only rarely can a vendor hope to sell a business
without giving the purchaser some chance to look at the books
in advance of a sale.
Dutch auction
An auction in which the auctioneer’s prices fall rather than rise.
In such an auction, the first person to bid wins whatever it is
that the auctioneer is selling. The name comes from the system
used in the Dutch flower markets, and it is also, occasionally,
used as a method of selling securities.
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Earnings
The profit of a company after deducting for tax, profits be-
longing to outside shareholders (minorities), extraordinary
items and dividends to preferred or preference shareholders.
Earnings are normally expressed per share, that is, the amount
divided by the total number of ordinary shares in issue.
This figure can be refined still further: from basic earnings per
share before share options, warrants and convertible
securities are taken into account, to fully diluted earnings per
share, the resulting figure after all these have been deducted.