Guide to Analysing Companies

Contract for difference
The generic name given to swaps that are traded to exploit the
difference between the fixed price of a financial instru-
ment agreed between two parties and the floating average of
that price over the same period. As with most forms of swap,
the contract is based on an exchange of income payments, or
the right to such payments, which can benefit both parties.
Some contracts for difference (cfds) have specific uses. For
example, a Brent cfd is a short-term swap that enables in-
vestors to hedge their exposure to the difference in price
between a contract to deliver crude oil at a certain date in
the future and the price in the cash market on the same date.
Convertible
The capacity of one financial instrument to be converted
into another. The expression usually applies to preference
shares or bonds that can be exchanged for a set number of
ordinary shares at a preordained price. Convertibles are at-
tractive to investors who want more income than they can
easily find from equity, together with the potential for a
C
CONVERTIBLE
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greater uplift in value than bonds will normally allow. The ad-
vantage for the issuer is that, to the right audience, such instru-
ments can be easier to sell.
Corporate bond
A bond issued by a corporation. Unlike bonds issued by gov-
ernments or government agencies, corporate bonds are taxable
for most investors. They generally also have a term maturity,
that is, all bonds issued together become due at the same time.
Like government bonds, corporate bonds are traded on stock
exchanges, their prices are quoted in the news media and the
companies that issue them can be rated by agencies for their
credit standing. Most corporate bonds are regarded as riskier
than those of governments or supranational agencies, so they
usually offer a higher yield.