PDSnet Glossary

Term

Categories

Introductory Technical Fundamental Economics Opinion Sectors International Regulatory Other Markets

Versions

Name	synonyms = 1, variations = 2, abbreviations = 3

Publish: (0 = no, 1 = yes)

Definition

This is the risk which is inherent in a particular company. It can be assessed by considering the company's financial statements or visiting it. The more you know about a company and the people who run it, the lower the fundamental risk. You need to consider exactly how the company makes its money - and what sort of risk there is to its business model. You can do a SWOT analysis - i.e. look at its Strengths, Weaknesses, Opportunities and Threats. Ratio analysis of the financial statements can reveal risks. For example, the interest cover ratio and the debt/equity ratio can show whether the company is over-geared. The management ratios like the stock-turn ratio and the debtors days outstanding ratio can give you a good idea of whether there is a problem in working capital management and so on. This is different to technical risk which is the risk that the company's share price will fall because, for example, it is over-bought.

Edit Glossary Term