Guide to Analysing Companies

Private placement
The sale of a large part of a new issue of shares (or a chunk
of existing ones) to a small group of investors, usually big insti-
tutions such as insurance companies or pension funds,
which may already own the company’s stock. The sale is
private in the sense that it is not offered to the general public
and is not sold through a recognised stock exchange.
Privatisation
The sale to the private sector, by a government, of businesses or
agencies that may at one time have been bought by previous
governments. The UK was one of the first countries in Europe
(where a surprising number of businesses still remain in public
hands) to realise the benefits to the enterprise and to the public
purse of returning them to the private sector. Utilities providing
telecoms, electricity, gas and water were among the first to be
privatised; the railways were among the last, and controversy
persists as much about the way it was done as about the beast
it was done to.
Some of the biggest sales of public assets took place in
eastern Europe after the fall of the Soviet Union. Particularly
notable was the work of Germany’s Treuhandanstalt, which
succeeded in privatising literally hundreds of businesses across
the country.
P
242
PRIVATE PLACEMENT
03 Essential Finance 10/11/06 2:22 PM Page 242

---

Profit
To an economist, profit is what is left over in an enterprise after
all its bills have been paid. Profit is the entrepreneur’s reward
for the risks he or she takes. To an accountant, profit is the dif-
ference between the revenue from sales and the total cost of
producing those sales. net profit before tax is what is left after
all money costs have been deducted from sales revenue – that
is, wages and salaries, rent, fuel, raw materials, interest and
depreciation. Gross profit is net profit before tax, and before
interest and depreciation. (See also earnings before inter-
est, tax, depreciation and amortisation.)
A business that makes nothing but money is a poor kind of business.
Henry Ford