Investment Analysis for Smart Decisions

Professional Investment Analysis: Maximize Profit and Minimize Risk

Evaluating investment risk


While evaluating a prospective investment, there are three factors that you  MUST look at: risk, cash flow, and resale value.


The first factor to be evaluated in any investment analysis is risk. The reason for this is simple: if the risk of the investment is too great then loss is quite likely. In this case, cash flows and resale value generally do not matter because the investment is worth nothing. To evaluate risk, one simply uses a variation of the following general formula:


Probability of an Event occurrence * the Impact of the event = Risk


Besides this, risk itself is not a clear and definite factor. Investment analysts must evaluate all the factors related to the investment and influencing the risk: specificity of the market and industry branch, the role of governmental agencies, internal peculiarities of definite company, and much more. In this way, evaluating risk is as much of an art as a science.

Cash flow as the source of ROI

The second factor of investment analysis is cash flows. Cash flows may have source from dividends from a publicly traded stock, interest payments on a bond, free cash flow distributed to the investors in a small business, etc. Cash flows are the main source of repayment on an investment. Thus, an investor will want to evaluate cash flows to see if they can repay the investment while also repaying the assumed value of the risk on the investment. Two of the most general methods of evaluating cash flows are Future Value of Cash Flows and Discounted Cash Flow Analysis – they work almost everywhere. Each investor may use a method of analysis based on the type of investment they are considering (mentioned above). The tool which definitely helps here is a relevant Financial Model for the investment under review. Regardless, ignoring the analysis of cash flows is a quick path to loss of investment capital.

Resale value – the focus of investment analysis

The third factor of investment analysis is resale value. Profit from resale comes through a gain in the market value of the asset. When the asset is sold to another investor for a value higher than the original purchase price, profit from resale value has occurred. In the process of investment analysis, an investor will want to measure the expected rate of growth on the asset to make sure that the value of this and any associated cash flows are larger than the loss of investment and the estimated value of the risk of the investment.

All of these methods of investment analysis are applicable to any investment: stocks on the stock market, treasury bills, the purchase and growth of a business, or even currency trading. Though investment for publicly traded stock will be quite different from business in excavating minerals, and each has a purpose-built method for investment analysis, the basic concept is the same - the investor is to be sure that the risk is worth the reward.

How Investment Analysis Can Help You

You can undertake numerous types of analysis, but we consider, prefer, and recommend you a solid bottom-up fundamental approach. Using this investment assessment method we can help you make a better and more reasonable decision, ultimately leading to a profitable investment case.
More detailed and updated information can be found in the relevant blog articles. Welcome.
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