Guide to Analysing Companies

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Promissory note
A legally binding promise between two parties that one will pay
the other a stated amount at a prescribed future date, with or
without interest. Often referred to simply as a note. Such
notes are often also negotiable instruments; that is, they
can be sold to a third party.
Prospectus
A document containing a company’s future plans, particularly in
relation to the issue of new shares to the public. In many coun-
tries the required contents of a prospectus are laid down by law. In-
dividual stock exchanges may have their own specific
requirements. Such documents usually have to be filed with a reg-
ulator, such as the sec. Some jurisdictions also require the issue of
a pathfinder or preliminary prospectus (also called a red
herring in the United States) to give investors an idea of the pro-
posed offering of new securities before the details are finalised.
Provisions
Money that a bank sets aside out of its profit to compensate
for its doubtful debts, that is, loans that it feels may never be
repaid in full. Banks in different countries set aside more or less
provisions depending on their prudence. For example, Japanese
banks have more leeway than US or European ones. In general,
there are two types of provisions.
 Specific provisions, which are set aside against specific
identifiable borrowers who, for whatever reason, look
unlikely to repay their debt in full.
 General provisions, which are not linked to individual
borrowers but are based on the bank’s hunch about what
future market conditions might mean for borrowers in
general. In other words, during difficult economic times,
banks’ general provisions usually rise.