Guide to Analysing Companies

Socially responsible investing
See ethical investing.
Solvency
The condition of an organisation whose assets are worth more
than its liabilities. Being solvent is not enough on its own to
ensure the financial health or indeed viability of an organisa-
tion. liquidity is also important.
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SOLVENCY
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Sources of funds
Where borrowers get their money from. In the case of corpora-
tions there are two sources: internal (the cash they generate
from their businesses) and external (the funds they procure
from the capital markets). Governments also have two
sources: taxation and borrowing.
South Sea Bubble
The inflation and subsequent collapse in 1720 of the shares of
the South Sea Company. These had been subjected to an ex-
traordinary amount of ramping, speculation and manipula-
tion before, like a bubble, they burst. The bubble began to
inflate when the company, which said it planned to trade in
South America, offered to swap all the British government’s
debt for its shares. Hyped by the company’s confidence and
speculators’ greed, the shares rose from £100 to more than
£1,000 each before crashing. All subsequent stockmarket
regulation and securities legislation have been influenced by
the events of 1720.
Special drawing right
A pseudo-currency invented by the international mone-
tary fund in 1967 and designed to provide countries with an
alternative reserve currency to gold and dollars. The special
drawing right (sdr) was an esoteric oddity until it was simpli-
fied into a basket of main currencies: the D-mark and French
franc (both since replaced by the euro), the dollar, the yen and
the pound. The simplification resulted in wider use of the sdr;
for example, a few commercial banks began to offer loans
and deposit facilities denominated in sdrs. In recent years,
however, the sdr has again assumed a narrower role. As such,
it cannot claim to be a currency, simply a claim on the curren-
cies of the countries whose currencies make it up.