Markets and shares

Adam Shaw answers your market and share questions

Sarah wants to know how to measure the performance of a company. She says she has already considered the balance scorecard and most of the traditional analysis methods.

WH Smith is in the news today, so let me use that as an example. The share price has fallen recently, although over the past 12 months the share price has risen.

But it's difficult to know whether that is good or bad in terms of other companies and what's happening on the markets in general.

WH Smith has outperformed it sector

However, if you take WH Smith shares and you compare their performance with the average retail share, you can actually see WH Smith has done much better than the sector average.

What's more WH Smith has quite substantially outperformed the average for the whole market.

Now, this kind of analysis doesn't tell you where the shares are going, but it does help set the past performance in context and gives you a much clearer idea of what has been going on.

You should also be looking at the last couple of annual reports and should read between the lines of the Chairman's statement.

Look at how much debt the company has, the dividend yield, the dividend cover, P/E ratio, earnings per share and read and listen to as much as possible about the company.

All of that is not as complex as it sounds even if it is time consuming. But if you want to analyse the company properly that's what you've got to do.

Geoff wants to know how a company can have both large debts and large profits.

There's nothing inherently wrong with debt if it's at the right level.

Companies borrow to reinvest in the future. It makes sense to borrow money if they can make more profit from using the loan than it costs in interest payments.

The average person quite often also has debts and profit.

If you own a house, you can have a large mortgage and yet a quite separate income.

Leonard Clarke asks: "Can a company switch from full listing to Aim without shareholder approval? What are the pros and cons of full listing versus Aim?"

Any change like that would generally have to be agreed at an Annual General Meeting (AGM) or Extraordinary General Meeting (EGM).

An Aim, or Alternative Investment Market, listing is cheaper than a full stock market listing but Aim is regarded as a junior market.

There is likely to be less investment interest in Aim shares, so the market may be less liquid.

Usually a company would grow up on Aim and graduate to a full listing.

It's unusual to do it the other way.

It may be due to financial consolidation, which is a posh way of saying trying to keep hold of their cash.

George Johnson says: "It's been a couple of years or so since I took economics at school - OK, over 40 years - but I need reminding of just what a market maker does."

A market maker is obliged to buy and sell shares in a particular company whether they want to or not.

This means investors don't get stuck with shares they don't want.

If you are buying large amounts of shares in small companies watch out for the normal market size.

The market maker is obliged to buy and sell shares up to the normal market size. If you want to sell more than that, you won't get as good a price.

Mark wants to know where he can find information on what benefits you get being a shareholder in a company.

Brokers Hargreaves Lansdown and Barclays Stockbrokers have booklets that list these. Just phone and ask for one.

Share perks can be the icing on the investment cake

But be careful - some companies, such as P&O, only offer perks to certificate holders, and not to shareholders with nominee accounts.

Usually it makes no sense to buy shares just for the perks, but they can be attractive.