Analyzing an investment company’s fundamental potential

  • By Author

  • September 12, 2018
  • 12:16 am BST

A company’s value is often reflected in the price of its shares, which can indicate both negative and positive potential. A company with stability attracts more investors as their chances of profiting are greater if the company succeeds. Alternatively, a company with an uncertain future is less likely to gain investments because it cannot promise success. As a result, the ability to analyze the potential of a company is essential.

Here is a collection of trading tips to use when analyzing a company. There are a variety of factors that influence the market and therefore the future value of each company, particularly when it comes to stocks. Each company is affected individually in its own way and creates different market sentiments, indicating the company’s potential to grow and become more successful.

Risk anticipation

Every company runs the risk of failures and losses as a result of changing economic conditions. These risks present themselves in various forms and affect the overall value a company is given. The first type of risk is called operating risk, which includes broken machinery, bad economic conditions, strong competitors and price increases.


Political risk is the potential of political events or news ruining market conditions. This type of risk applies to all traders, whether they’re involved in forex, stock or CFD trading. Any changes in economic policies, such as a tax increase, can largely influence market performance and thus company performance.

Currency risk is the potential for a currency to decline in value or crash. If a currency is negatively impacted by any release, it can affect the costs and profits of the company.

A company always runs the risk of being sued or involved in a legal dispute, which results in legal risks. If the company loses such a battle, it can destroy the business and ruin its potential for success. The company could even be forced to close for business, causing danger for investors.

Insolvency is the last major risk that is always present. Financial debt can cause the company to fail entirely or never meet its obligations. This risk can be measured by interest earned, the ratio of debt to equity, and the ratio between current assets and liabilities.

Assessing market value growth

When analyzing a company, it is important to compare how the company is faring in the markets compared to other companies on its level. In order to complete this evaluation, you can calculate the price-to-earnings (P/E) ratio of the companies. This can either be done by dividing the market capitalization of the company by the net income, or by dividing the share price by the total earnings per share. The higher the ratio, the better the company’s chances are of growing.

In addition to this method of evaluation, you can then calculate the price/earnings-to-growth (PEG) ratio by dividing the P/E ratio by the rate of earnings growth.

Dividends are also key factors in evaluating the market conditions and how a company will be affected. This value reflects the amount shareholders are being paid. These dividends indicate to investors the potential future outcomes of the company and its growth.

Earnings reports and takeover bids 

The release of information regarding company earnings reveals a lot about the state of the company and market. Because most traders monitor these releases carefully, one release can cause extreme volatility on its own. The higher the earnings, the more likely the company is a wise choice. Similarly, takeover bids also influence a company’s value. These trades attract attention, either good or bad, and ultimately affect market and company values.


Analyzing the fundamental potential of a company encompasses a broad range of factors. By studying these factors and their potential impacts on a company, you will be able to steer clear of companies with low potential for growth and success and avoid possible failures.