Guide to Analysing Companies

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DEVALUATION
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from, a devaluation. Governments are often forced to devalue
their currencies when the system of fixed exchange rates under
which they are operating becomes untenable. To sustain a fixed
exchange rate, a country must have enough reserves, often in
dollars, to purchase all offers of its currency at the established
exchange rate. When a government is unable or unwilling to do
so, as happened in Argentina in 2001, it must devalue its cur-
rency to a point which it can support. This caused problems for
many Argentinians who had taken out dollar-denominated
loans, notably mortgages, in the belief that the value of the
peso would remain tied to the dollar. Devaluations also hit ex-
porters selling goods at prices set in the devalued currency.
It does not mean, of course, that the pound here in Britain, in your pocket
or purse or in your bank, has been devalued.
Harold Wilson, British prime minister, after the pound was devalued
Dilution
When a company issues more shares, and sells them for less
than their market price, the value of each existing share is
diluted. The total value of the company is being divided into a
larger number of little pieces (that is, shares). Hence the value
that attaches to each piece gets smaller. Companies talk about
their fully-diluted earnings per share. This refers to the
earnings per share when all shares are included: ordinary
shares plus any convertible securities (that is, convertible
into shares), as well as all warrants and stock options.
Direct
A general word for the way in which financial services are sold
by telephone or over the internet rather than face-to-face by an
agent (in insurance) or over the counter (in banking),
as in “direct insurance” or “direct banking”. There has been
rapid growth in the direct selling of financial services in recent
years. This has enabled many firms to cut out middlemen, with