Annual Report and Accounts To Averaging Up (Money)

Annual Report and Accounts

This is a glossy, slick document produced by all companies that are quoted on the Stock Exchange and it should come out within six months of the announcement of a company’s results. You get a summary of the company’s activities, a look-see at what it owns and how much money’s in the kitty, how much it owes and is owed, and how much profit or loss was made for the year. So don’t get intimidated by the myriad of numbers because they really aren’t as scary as they look (see Accounts).

APR – Annual Percentage Rate

This number, expressed as a percentage, tells you how much you are paying for the use of any money you borrow, that is, credit, a loan, etc. It includes both compounding and any charges you have to pay and means you can compare different types of credit from the vast choice of financial services companies all eagerly bending over backwards to persuade you to sign on the dotted line. Generally speaking, the lower the APR number, the better for you because it means you are paying less for the privilege of borrowing the dosh (see Compounding).


If you’ve ever been to various shops to compare the price of a particular model of TV to see which shop is selling it the cheapest, this gives you some idea of what arbitrageurs do. However, while you are unlikely to buy the TV with a view to selling it at a profit, the arbitrageur does precisely that. Of course, ‘arbs’ as they are commonly called in the City, don’t trade in television sets, but they do look to exploit the anomalies between the prices of shares (or currencies or commodities) that exist in various marketplaces.

‘A’ Shares

When you see ‘A’ shares in a company, watch out! It means that there is more than one type of share, each of which will have different rights and attributes. These can be anything the company wants them to be. Some shares might be non-voting, some might be double voting at Annual General Meetings or Extraordinary General Meetings. ‘A’ shares are relatively rare, and tend to be issued by family-controlled companies, which hold the bulk of the voting shares.


Assets are things you own that are worth money. Personal assets could be a house, a bar of gold, a picture, a car, cash, a building society account. I think you get the idea. Shares, too, even though they’re only bits of paper floating around – well no, actually not floating, but safely put away in your filing cabinet, with a bit of luck. In a business sense, assets are things that belong to a company. They could be physical – that is, tangible assets such as land or property, or intangible, such as intellectual property, patents or brands. The latter are harder to value than physical assets (see Intangible Assets, Tangible Assets).

Asset Allocation

The professional fund managers to whom we’ve trustingly handed over our hard-earned cash have to decide how best to carve up that lovely loot. The aim is to spread the huge quantities of cash in funds over a wide variety of investments in order to reduce the risk of losing money and maximize returns. Whilst this may seem an easy task – ‘Okay, we’ll put a million into a nice castle in Scotland, and how about another million into gold ingots?’ – it does require rather careful thought. The fancy City phrase is ‘asset allocation’. There are two ways in which asset allocation takes place: by type (also known as asset classes) – bonds, cash, property, shares, etc, and by geography – United Kingdom, United States, France, Germany and so on. So let’s say a fund manager decides to put 10 per cent of the money at his or her disposal into France. His or her next job is to decide how to spread that cash – how much should go into French shares, bonds or real estate? Active fund managers make all these intricate decisions. The passive variety decide how to carve up the assets by geography, and once they’ve decided what percentage of the money goes into the United Kingdom, United States etc, they then use the same methods as the tracker funds (see Tracker Funds).

Asset Cover

This is a ratio that works out whether a company owns enough things by way of assets to pay off its debts, if it had to do so. City analysts love to crunch this theoretical number. It’s a delightfully simple sum (for a change!):

Assets .

„ . . = Asset Cover


Obviously the higher the number, the more secure the company’s financial footing (see Dividend Cover, Interest Cover, Ratios).

Asset Stripper

The mind really boggles at this one. What does an asset stripper do? Well, the most successful ones are usually (but not always) short, powerfully built and not likely to show off their bodies. Also known as corporate raiders, they make an absolute fortune in this line of business. They are the Jimmy Goldsmiths and Henry Kravises of this world, who have an incredible knack for zeroing in on companies that are vulnerable to takeover. If successful, they buy up the company cheaply, usually with the view to selling off the component parts for more than they paid for the whole. They target weak companies that might have ropy management or products, but which have some underlying sexy assets, like land, property, or patents, that no one else has valued properly. Shareholders in the target company love it because they get to make loads of dosh on their shares and the asset stripper justifies it as creating shareholder value. Obviously he doesn’t bother with companies that have excellent management and are doing brilliantly, because that will be reflected in the share price for the company and believe me, asset strippers like bargains (see Poison Pill, White Knight).

Asset Turnover

This is another delightfully simple number to crunch:


It gives eager investors a rough guide to how hard the assets of a company are working to produce each unit of revenue, or sales, and so gives them a clue as to how efficiently those assets are being used. The main thing to note here is that companies in different industries have different asset requirements. ‘Capital-intensive’ industries, such as car manufacturers, which require lots of equipment and machinery for example, will record lower asset turnover ratios than those that require fewer assets. Other terms meaning the same thing are ‘sweating the assets’, ‘asset turn’, ‘asset utilization’ and ‘ratio of sales to capital employed’. The higher the number compared with the industry sector average, the better the company should be doing.

Association of Investment Trust Companies

Also known as the AITC. A useful organization that does its utmost to clarify to you, a potential investor, the virtues of investment trusts or ITs as they are usually called (see Investment Trust). Not to be confused with the Information Technology sector! It gives out helpful freebie and high-quality, low-cost information on the performance of the various ITs. Eager to demystify (hurrah!) how the investment trust world works, the AITC endeavours to explain how one can differ from another. Contact the association at

Association of Private Client Investment Managers and Stockbrokers

Otherwise known as APCIMS. This is your first port of call if you don’t have a stockbroker, and you don’t have any friends who can recommend a good one to you. They’ll send you an up-to-date brochure, which outlines details of private client brokers. But watch out – although they’ll send you a list of brokers, what they cannot do is provide you with recommendations on which broker to use. That, dear reader, you’ll have to work out for yourself, so tread with caution. Check out the track record of the particular firm you’re thinking of dealing with and don’t be afraid to shop around.

At Best

‘At best’ or ‘at market’ both mean the same thing - it’s when a stockbroker buys or sells shares for you at whatever is the prevailing price in the market at the moment of dealing. I do not like the idea of giving too much control to someone else to make decisions like this. I get the broker to check the price of the shares in the market. Once I’ve made up my mind what share price I will be happy to pay or receive, I instruct him or her to do the deal at a certain price or ‘limit’ (see At Limit, Stop-Loss Order).

At Limit

It’s generally better to instruct a broker to buy or sell shares on your behalf ‘at limit’. It essentially means setting a price limit for them. On deciding how much you want to pay for each Bloggins plc share, do not keep this valuable piece of information to yourself, but convey it clearly and firmly to the broker, who will then transact the deal. Share prices fluctuate moment by moment in the electronic marketplace and it can be helpful to have his or her input and guidance as to what’s realistic on this front. ‘Limiting’ a sale or purchase price can also be applied to other financial assets such as bonds, for example. A similar, but different strategy is using ‘stop-loss’ instructions to insulate yourself from nasty share price shocks (see At Best, Stop-Loss Order).

At the Money

Here we are in the colourful world of options. But there’s no need to get dazed and confused. When you purchase an option, you are simply buying the right, but not the obligation, to buy or sell a financial asset, could be a share, a currency, etc, at a fixed price at some point in the future (see Call Option, Derivatives – Options, Put Option). Suppose you buy an option that gives you the right to buy shares in British Telecom at £10.00 nine months from now. They are currently trading at the same price, that is, £10.00. As the underlying shares are trading at the same level as you have fixed the right to buy them at, the option is ‘at the money’, which means that you haven’t gained or lost money with it at that moment in time. This phrase is applicable to call and put options (see In the Money, Out of the Money).


Someone whose job it is to check over the numbers produced by businesses. Auditors are supposed to look out for dodgy goings-on or badly put-together accounts. Most registered companies and all stock market quoted ones have to have their accounts audited (see Accounts).

Auditor’s Report

This report is tucked away somewhere in the backwaters of a company’s accounts. If you own shares in Squidgetmakers plc, pay close attention to this apparently tedious little section. It’s actually very important. If the accounts are ‘clean’, then breathe a sigh of relief. However, if for any reason there is a problem with the way the company has prepared its accounts, or even worse, a potential glitch with the company’s activities, it will show up here as a ‘Yes the accounts were okay but… ‘ qualification. If there are any nasty surprises, you’ll be on the ball, ready to take appropriate action.

Authorized Share Capital

The activities of all companies are governed by a legal document, specific to each company, called a Memorandum of Association. Amongst tons of other things, this document ‘authorizes’ the company to issue a certain number of shares. The maximum number of shares that can be issued is otherwise known as its ‘authorized share capital’. However, just because the company is authorized to issue, say, a million shares, doesn’t mean it has to do so. But if the directors want to increase the number of shares beyond the authorized amount, they have to ask the permission of their shareholders at either an Annual General Meeting or an Extraordinary General Meeting (see Called-Up Share Capital).

Averaging Down

Something that is very tempting to do when you see your newly purchased shares plummet in price. The idea is that if your shares halve in value, and you buy some more at half price, the overall cost of the investment per share will be a lot less than your original purchase price. This is known as averaging down. Of course there is a catch to this otherwise sensible strategy. If your shares have fallen out of bed, it might be a good idea to question very closely why. If there is a question mark over the management or the viability of the business, you may not want to own the shares at all. That will be your decision. Do not just take it as read that the right thing to do is buy more of the same.

Averaging Up

Amazingly enough, this is the opposite of averaging down! It’s when shares that you are skilful enough to buy on their way up spiral upwards as the company goes from strength to strength and you keep adding to your shareholding. But you have to be sure that the shares are set for a pretty long-lasting re-rating. It’s easy to get swept up in rumour, market sentiment and euphoria. The main thing is to be certain that the shares you’re averaging up justify the hype that usually surrounds their meteoric rise.

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