Guide to Analysing Companies

M
198
MARGIN ACCOUNT
02 Essential Finance 10/11/06 2:22 PM Page 198

---

investors to buy more securities than they are able to (or
want to) pay for in full at the time.
Mark down
There are three main meanings.
1 To adjust downwards the value of securities in which in-
vestment banks are making markets because of a general
selling pressure.
2 To reduce the price at which underwriters offer bonds
after the market has shown a distinct lack of interest at the orig-
inal price.
3 To reduce the price of a product or service.
Market capitalisation
The market value of a company’s issued share capital; that is,
the quoted price of its shares multiplied by the number of
shares in issue. The shares of quoted companies are divided into
three main types:
 large caps – companies with large market
capitalisations;
 mid caps – companies with medium-sized capitalisations;
 small caps – companies with small capitalisations.
Since the stockmarket’s capitalisation moves up and
down with the value of the stocks that are traded on it, there
is no hard and fast rule. But in London the 100 largest stocks are
regarded as the large caps, the next 250 as mid caps and the re-
mainder as small fry. Investment funds generally specialise in
one or the other and measure their performance against the rel-
evant market index. A tracker fund, which tracks a partic-
ular index, by definition must hold the shares of all companies
that make up the index.
M
MARKET CAPITALISATION
199
02 Essential Finance 10/11/06 2:22 PM Page 199

---

Market maker
A dealer in securities who is prepared to buy and sell (that
is, make a market in) the securities of a particular company.
Market makers frequently stand ready to deal in the shares of
several companies, particularly those traded on over-the-
counter markets such as nasdaq. Being a market maker
obliges a broker to buy or sell at least 100 shares of a
company in whose shares it trades. As a result, big orders for
certain stocks placed by institutions often have to be filled by
more than one market maker. (See also jobber.)
Mark to market
The recording of the value of a security or investment port-
folio according to its market worth. Most US institutions mark
to market each quarter; unit trusts and mutual funds do
so every day in order to arrive at a net asset value per unit.
Matching
The process by which a bank aligns its assets (that is, its
loans) with its liabilities (its deposits). The alignment in-
volves matching three main things: currency, maturity and
geography. Banks with perfectly aligned assets and liabilities do
not make much profit. A banker’s skill lies in judging the right
degree of mismatch to maximise profit for an acceptable level
of risk.