Guide to Analysing Companies

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current liabilities) plus bank loans and overdrafts. The
return on capital employed is a measure of how efficiently a
company is employing its capital to generate a return. The ratio
is usually calculated as the profit before interest and tax
divided by the difference between total assets and current
assets.
Capital flight
See flight capital.
Capital gain
The profit from the sale of a capital asset (such as a bond
or a share). In most countries, capital gains are subject to
special tax rules. Assets sold for a profit and held for more
than a year are usually subject to a special rate of tax that is
related to the amount of income tax the seller pays. Often there
is relief for certain provisions that can be set off against the
total. For example, relief is often linked to the rate of infla-
tion. Lower rates of tax can also apply if assets are held for
longer than a year. In some countries, capital gains are treated in
the same way as income, so it does not matter as much when
investors buy or sell assets.
October: This is one of the particularly dangerous months to invest in
stocks. Other dangerous months are July, January, September, April,
November, May, March, June, December, August and February.
Mark Twain
Capitalisation
The attribution of a capital value to a stream of income. This
value is the amount that would have to be invested now in
order to produce a particular income stream in the future (see
also market capitalisation). In accounting, the term
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means recording costs as assets rather than as expenses. For
example, a firm might capitalise research and development
costs. In stock exchange parlance, it is the aggregate market
price of all of a company’s ordinary shares.