Guide to Analysing Companies

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Econometrics
The use of computer analysis to describe the relationship
between the main economic forces such as capital, rates of
interest and labour. Economists can test the relationship
between these influences and determine what is likely to
happen to the economy if one or more elements change.
Economic and Monetary Union
The process, known as emu, of bringing together the currencies
and monetary policies of the member states of the European
Union so that the whole block lives and works with a single cur-
rency (the euro) and is governed by a single central bank (the
european central bank). The timetable for emu, laid
down in the Maastricht treaty, began in earnest in 1999. The
treaty established certain criteria (on budgetary deficits and the
like) which member states must meet if they are to participate
fully in emu. The 11 members of the euro zone – Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal and Spain – which came into being on
January 1st 2000, were joined by a 12th, Greece, on January 1st
2001. The process, mapped out ten years earlier, reached its con-
clusion on January 1st 2002, when all 12 states dropped their in-
dividual currencies and adopted the euro. On that date the euro
became not just scriptural – that is, something in which compa-
nies could deal and which institutions could borrow – but also
a currency with notes and coins that people could touch.
Efficient market theory
The theory that excess returns from the stockmarket for a
given level of risk are always arbitraged away (that is,
equalised), so investors can only make what the market allows.
If this is so, why is there a whole industry – investment man-
agement – dedicated to the idea that such returns are possible?
Good question. At its crudest, the efficient market theory says