Guide to Analysing Companies

Value added
The amount by which the value of something is increased by a
specific process or service. Commonly used as the yardstick to
justify a new business activity, as in “Where’s the value
added?”.
Value-added tax
A form of consumption tax much favoured by countries in the
European Union. With few exceptions, in countries where it is
applied the tax is levied on a product or service at each stage of
its manufacture. Opponents claim that value-added tax (vat) is
regressive and is levied on those least able to pay it. Proponents
argue the opposite: that sales taxes are fairest because they are
aimed at those who actually use the product or service.
Value at risk
A method of establishing the risk to which an investment
portfolio may be exposed from day to day and thus of
avoiding unnecessary losses. The huge losses suffered from
trading in derivatives by Barings, Orange County and others
in recent years have encouraged the search for systems that will
warn of impending disaster. Some methods aim to quantify risk
by measuring the standard deviation of a portfolio’s return;
others use a sampling technique based on history. None, so far
at least, has proved itself foolproof.
Value date
The date on which a transaction in the foreign-exchange
market is settled. For deals done in dollars, it is usually one busi-
ness day after the contract matures; for most other curren-
cies it is two business days.
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Value investing
An approach to investing best summed up by Benjamin
Graham, a veteran American investor, who urged others to seek
a “Margin of Safety”; the opposite of growth investing.
Value investors ferret out the stocks of companies (that is,
value stocks) which have solid businesses and balance
sheets but which, for one reason or another, are out of favour
with the market. Such investors aim to buy low and sell high.
Their techniques vary. Warren Buffett, one of the most success-
ful investors of all time, values companies on the basis of the
present value of their future cash flows. Others look for
companies whose price/earnings ratios are below the
average for the market as a whole. Most take a long-term view
of investment. A unit trust or a mutual fund that uses
such an approach is called a value fund.
Value stock
A share in a company whose price appears cheap compared
with the value of its assets or the size of its earnings and
with the averages for the stockmarket as a whole. Value
stocks are often in mature or low-growth industries that have
fallen out of favour with investors. The dividends they pay
are high in relation to their share prices, giving their shares a
high yield but low price/earnings ratio. A value fund,
therefore, is a unit trust (mutual fund) which seeks out
such shares in the hope that they will eventually rise in value.