Guide to Analysing Companies

Capital market
Any market in the long-term financial instruments (such
as shares and bonds) that make up a company’s capital.
Capital ratio
The ratio of a bank’s capital and reserves to its total
assets. In most countries, this figure is not allowed to exceed a
ceiling set by the central bank. In the United States, capital
ratio requirements apply also to brokers and dealers oper-
ating in the financial markets. This is so as to ensure that their
total borrowings do not exceed a certain proportion of their
liquid assets, such as cash, or its equivalent, such as short-term
financial instruments.
Captive
insurance companies (or fund managers) that are set up
inside large multinational groups for the purpose of handling
all the multinational’s own insurance or fund management
needs. A captive insurer is expected to handle all the parent
group’s business (and to be cheaper than buying the services
from outside). Although in theory such captives are free to
accept business from outside the group, in practice they rarely
do. A company will consider setting up a captive when it has
sufficient demand, specialised needs, easy access to capital
and a desire to keep the profits from the business within the
group. Even so, captive insurers will take only a proportion of
the risks that they underwrite. Most will be reinsured with
outsiders.
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CAPTIVE
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Carry back
The capacity to shift tax advantages, or pension payment priv-
ileges, back into a fiscal year that has ended. For example, in
some circumstances, contributions to a pension fund can be
carried back to previous years if an allowance has not been met.
Carry forward
The capacity to shift tax advantages, or pension payment priv-
ileges, forward into a year that has not yet begun. For example,
in certain circumstances, companies may carry losses forward
to set against tax due on profits earned in subsequent years.
This is why some loss-making companies are more valuable
than their business models might suggest.