Guide to Analysing Companies

Spread betting
A way of betting on the outcome of movements in the financial
markets. Like bookmakers at the races, specialist firms accept
bets on the movement up or down over a period of a stock
index or an individual share. The profit or loss is calculated on
the basis of the number of “points” between the price at the
outcome and what it was when the punter made the original bet.
Take XYZ company, which is quoted at a spread of, say,
863–870 pence. If you think the price is going to fall, you would
take out a “down” bet for, say, £15 at 863 pence, the lower of the
two prices quoted, over a period of, say, two weeks. If at the
end of the period the spread quoted has fallen to 830–837 pence,
you would buy back your original down bet at 837 pence,
making a profit of £390 (863  837  26, then 26  £15  £390).
Conversely, if the spread quoted had risen to 880–893 pence,
you would lose a corresponding amount (863 
 880  17, then
17  £15  £255).
Spread betting is risky because, unless you cap your liabil-
ity by taking out an equal and opposite bet or otherwise min-
imise your exposure, you are liable for the full extent of your
losses should the price fall. Although spread betting in financial
markets began only in the 1970s, it has long been popular with
followers of sport. Today it is possible to gamble in the same
way on the outcome of, say, a cricket match by taking an up or
down bet on the number of runs a particular side will score. A
boon for UK residents is that profits from all such transactions
are free of capital gains tax and stamp duty.
S
280
SPREAD BETTING
03 Essential Finance 10/11/06 2:22 PM Page 280

---

Spreadsheet
A series of rows and columns of numbers – for example, of a fi-
nancial intermediary’s sales and the commission due on each
deal. Because of their complexity and the fact that changing one
number invariably has a knock-on effect elsewhere, spread-
sheets were early candidates for computerisation. These days
sophisticated models of a company’s financial profile can be
generated at the touch of a button. analysts use fancy soft-
ware to assess the impact of changes in a company’s borrowing
costs or its trading margins on its expected profit.