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Fundamental Value Indicator® - Future Profit Potential

The intrinsic ability of a company to generate future profit

The Future Profit Potential of a company is the intrinsic ability of the business to generate future profits. It is the basis of the entire investment.

Anyone who doesn’t consider a company’s profit potential just bobs around in the stock market like a rudderless ship and ends up on the rocks. Really systematically understanding the stock market is only possible if the Future Profit Potential of a company is considered.

The Future Profit Potential is updated daily based on the latest company data. It is included in the Price Increase Potential Screenings. It is also shown in the Fundamental Value Indicator®, which is part of the Company Reports.

The Future Profit Potential and the value of a company

The value of a company is determined by analyzing its historical results, current results and above all the potential that the company has to grow its profit in future years..

The greater the growth potential, the more a stock is worth paying for. The value of a stock increases proportionally with the earnings growth and especially with the expected earnings growth, which is in turn determined by the profit potential. Obviously an investor who bases his decisions on the profit potential of a company will achieve better results on the stock market because the businesses with the largest profit potential are logically those whose value will increase the fastest.

Score between 0 and 100

In order to be able to compare companies and to rank them on the basis of their profit potential, the Future Profit Potential of each business is scored on a scale of 0 to 100. The score awarded to the company is proportional to the company’s profit potential. The greater a business’ intrinsic capacity with which it can grow and generate profit in the future, the higher the score.

Calculation

The basis of the future earnings growth of any company has already been established. The strength of a business and the value of the management have already been established in prior years. The quality of the management and the overall strength of the company can be measured above all based on the results that the management has achieved for the company. The quality of the management can be measured in the same way as the quality of a student can be measured, based on results. A student who has achieved good results in the past will probably do just as well in the future. The same is true for the management of a business.

  • A company that has never made a loss in the last 10 years is given a higher score.
  • The progress of a company in recent years is of course more important than the developments in earlier years. More weight is therefore put on the profit development of the more recent years than on the profit development in earlier years.
  • The company gets a higher score if growth is steadier and future results can therefore be estimated more accurately.
  • The score awarded to a company increases with the growth rate of the company’s results. Again, more weight is given to the growth in the more recent years than that of earlier years.
  • The model awards more points to a company whose results grow at an increasing rate. The most weight is however given to the future growth of a business. The greater the expected earnings growth is in the coming years, the higher the score.
  • The score awarded to a company increases with the growth rate of the company’s results. Again, more weight is given to the growth in the more recent years than that of earlier years.
  • The financial strength of a company obviously plays an important role in the calculation of the intrinsic ability of the business to generate profit in the future.