Guide to Analysing Companies

O
ORDINARY SHARE
225
02 Essential Finance 10/11/06 2:22 PM Page 225

---

a company’s assets if it goes into liquidation. However,
they also stand to gain the most in value if the company’s busi-
ness prospers.
OTC
See over the counter.
Out of the money
A traded option is said to be out of the money if the price of
the underlying security moves against either the buyer or the
seller. For example, a call option to buy shares in ABC
company in December for $50 each would be out of the money
if the shares were selling for, say, $45 each because the owner
of such an option is betting that the price will rise. Similarly, a
put option to sell a similar number of shares in December for
$60 each would be out of the money if the price rose in value
within the specified period of the contract to $65 a share.
Contrast with in the money.
Outsourcing
The handing over of responsibility, popular among financial
services firms, for various specialist functions such as informa-
tion technology, logistics and data processing. banks, finan-
cial institutions and investment companies of various
kinds find it cheaper to outsource tasks that may be important
but not central to their business, so leaving them free to concen-
trate on what they do best. In return, the companies to which
the task is being outsourced generate economies of scale and
specialised skills from handling large volumes of data process-
ing and so on. fund managers even outsource the custody
and settlement of their clients’ investments to experts in the
field.
O
226
OTC
02 Essential Finance 10/11/06 2:22 PM Page 226

---

Overdraft
A credit facility that allows borrowers to draw upon it (up to
a specified limit) as and when they need to. Borrowers pay only
for what they use. Overdrafts are popular with companies and
consumers alike because of their flexibility. By a quirk of history
such facilities are peculiar to Europe, and are rarely found in
Japan or the United States. The nearest equivalent in the United
States is a loan facility, a line of credit for which borrow-
ers must pay whether they use it in full or not.