Investments in Companies - an Asset Class with Potential
In the current low-interest environment, attractive investments and return opportunities are scarce. An interesting investment alternative for investors can be found in medium-sized companies. These offer promising investment returns with calculable risks. Private and commercial investors are constantly looking for attractive investment opportunities that stand in an appropriate risk/return ratio, due to the currently prevailing low-interest phase and overpriced assets. An interesting investment alternative with high potential can be found in German medium-sized companies - with risks that are generally calculable. Potential Analysis as a Starting Point The investment opportunities in medium-sized companies are diverse. In addition to equity financing, for example in the form of equity stakes, investors can also provide loans and thus debt capital. Jochen Mulfinger, Managing Director of the Heilbronn-based business consultancy MWB Wirtschaftsberatung: "In any case, a careful analysis of the company in which the investment is planned is important. Because with this lucrative investment opportunity, there are generally higher risks compared to traditional asset classes. This means that the investor should have professional expertise or seek support from experts." Anyone looking to invest in companies should focus only on firms with high potential. According to the business consultant, these potentials can be very diverse. From revenue growth potential, market expansion potential, cost reduction potential, to distribution potential and cash flow potential, many things are possible. "After this potential analysis, an assessment of the company's data should be carried out for risk assessment," says Mulfinger. Companies are evaluated using various methods. Almost all methods evaluate the profit or cash flow by a certain factor and subtract the existing liabilities. Double Effect An exemplary investment opportunity with a doubly positive effect for the investor is shown in the following calculation model: An investor participates in a company with a sustainably good business model and an annual profit of €200,000. However, the company is financed with expensive debt capital and incurs an annual interest expense of €250,000 with a financing amount of €1.5 million. The investor acquires a stake in the company and receives an attractive capital return with, for example, a 4% equity salary. At the same time, the company's interest expense decreases to €60,000 and the annual surplus increases by €190,000 to €390,000. Mulfinger: “The significantly increased profitability in turn increases the company's value by approximately €1 million. As a result, the investor can expect an additional return on his equity value when selling his stake.”
