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What’s in an Equity Research Report?

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Even though you can easily find real equity research reports via the magical tool known as “Google,” we’ve continued to get questions on this topic.

Whenever I see the same question over and over again, you know what I do: I bash my head in repeatedly and contemplate jumping off a building…

…and then I write an article to answer the question.

To understand an equity research report, you must understand what goes into a  stock pitch first.

The idea is similar, but an ER report is a “watered-down” version of a stock pitch.

But banks have some very solid reasons for publishing equity research reports:

Why Do Equity Research Reports Matter?

You might remember from previous articles that equity research teams do not spend that much time writing these reports .

Most of their time is spent speaking with management teams and institutional investors and sharing their views on sectors and companies.

However, equity research reports are still important because:

• You do still spend some time doing the required modeling work (~15%) and writing the reports (~20%).
• You might have to write a research report as part of the interview process.

For example, if you apply to an equity research role or an equity research internship , especially in an off-cycle process, you might be asked to draft a short report on a company.

And then in roles outside of ER, you need to know how to interpret reports quickly and extract the key information.

Equity Research Reports: Myth vs. Reality

If you want to understand equity research reports, you have to understand first why banks publish them: to earn higher commissions from trading activity.

A bank wants to encourage institutional investors to buy more shares of the companies it covers.

Doing so generates more trading volume and higher commissions for the bank.

This is why you rarely, if ever, see “Sell” ratings, and why “Hold” ratings are far less common than “Buy” ratings.

Different Types of Equity Research Reports

One last point before getting into the tutorial: There are many different types of research reports.

“Initiating Coverage” reports tend to be long – 50-100 pages or more – and have tons of industry research and data.

“Sector Reports” on entire industries are also very long. And there are other types, which you can read about here .

In this tutorial, we’re focusing on the “Company Update” or “Company Note”-type reports, which are the most common ones.

The Full Tutorial, Video, and Sample Equity Research Reports

For our full walk-through of equity research reports, please see the video below:

Table of Contents:

• 1:43: Part 1: Stock Pitches vs. Equity Research Reports
• 6:00: Part 2: The 4 Main Differences in Research Reports
• 12:46: Part 3: Sample Reports and the Typical Sections
• 20:53: Recap and Summary

You can get the reports and documents referenced in the video here:

• Equity Research Report – Jazz Pharmaceuticals [JAZZ] – OUTPERFORM [BUY] Recommendation [PDF]
• Equity Research Report – Shawbrook [SHAW] – NEUTRAL [HOLD] Recommendation [PDF]
• Equity Research Reports vs. Stock Pitches – Slides [PDF]

If you want the text version instead, keep reading:

Watered-Down Stock Pitches

You should think of equity research reports as “watered-down stock pitches.”

If you’ve forgotten, a hedge fund or asset management stock pitch ( sample stock pitch here ) has the following components:

• Part 1: Recommendation
• Part 2: Company Background
• Part 3: Investment Thesis
• Part 4: Catalysts
• Part 5: Valuation
• Part 6: Investment Risks and How to Mitigate Them
• Part 7: The Worst-Case Scenario and How to Avoid It

In a stock pitch, you’ll spend most of your time and energy on the Catalysts, Valuation, and Investment Risks because you want to express a VERY different view of the company .

For example, the company’s stock price is $100, but you believe it’s worth only $50 because it’s about to report earnings 80% lower than expectations.

Therefore, you recommend shorting the stock. You also recommend purchasing call options at an exercise price of $125 to limit your losses to 25% if the stock moves in the opposite direction.

In an equity research report, you’ll still express a view of the company that’s different from the consensus, but your view won’t be dramatically different.

You’ll spend more time on the Company Background and Valuation sections, and far less time and space on the Catalysts and Risk Factors. And you won’t even write a Worst-Case Scenario section.

If a company seems overvalued by 50%, a research analyst would probably write a “Hold” recommendation, say that there’s “uncertainty around several customers,” and claim that the company’s current market value is appropriate.

Oh, and by the way, one risk factor is that the company might report lower-than-expected earnings.

The Four Main Differences in Equity Research Reports

The main differences are as follows:

1) There’s More Emphasis on Recent Results and Announcements

For example, how does a recent product announcement, clinical trial result, or earnings report impact the company?

You’ll almost always see recent news and updates on the first page of a research report:

These factors may play a role in hedge fund stock pitches as well, but more so in short recommendations since timing is more important there.

2) Far-Outside-the-Mainstream Views Are Less Common

One comical example of this trend is how all 15 equity research analysts covering Enron rated it a “buy” right before it collapsed :

Sell-side analysts are far less likely to point out that the emperor has no clothes than buy-side analysts.

3) Research Reports Give “Target Prices” Rather Than Target Price Ranges

For example, the company is trading at $50.00 right now, but we expect its price to increase to exactly $75.00 in the next twelve months.

This idea is completely ridiculous because valuation is always about the range of possible outcomes, not a specific outcome.

Despite horrendously low accuracy , this practice continues.

To be fair, many analysts do give target prices in different cases, which is an improvement:

4) The Investment Thesis, Catalysts, and Risk Factors Are “Looser”

These sections tend to be “afterthoughts” in most reports.

For example, the bank might give a few reasons why it expects the company’s share price to rise: the company will capture more market share than expected, it will be able to increase its product prices more rapidly than expected, and a competitor is about to go bankrupt.

However, the sell-side analyst will not tie these factors to specific share-price impacts as a buy-side analyst would.

Similarly, the report might mention catalysts and investment risks, but there won’t be a link to a specific valuation impact from each factor.

So the typical stock pitch logic (“We think there’s a 50% chance of gaining 80% and a 50% chance of losing 20%”) won’t be spelled out explicitly:

Your Sample Equity Research Reports

To illustrate these concepts, I’m sharing two equity research reports from our financial modeling courses :

The first one is from the valuation case study in our Advanced Financial Modeling course , and the second one is from the main case study in our Bank Modeling course .

These are comprehensive examples, backed by industry data and outside research, but if you want a shorter/simpler example you can recreate in a few hours, the Core Financial Modeling course has just that.

In each case, we started by creating traditional HF/AM stock pitches and valuations and then made our views weaker in the research reports.

The Typical Sections of an Equity Research Report

So let’s briefly go through the main sections of these reports, using the two examples above:

Page 1: Update, Rating, Price Target, and Recent Results

The first page of an “Update” report states the bank’s recommendation (Buy, Hold, or Sell, sometimes with slightly different terminology), and gives recent updates on the company.

For example, in both these reports we reference recent earnings results from the companies and expectations for the next fiscal year:

We also give a “target price,” explain where it comes from, and give our estimates for the company’s key financial metrics.

We mention catalysts in both reports, but we don’t link anything to a specific valuation impact.

One problem with providing a specific “target price” is that it must be based on specific multiples and specific assumptions in a DCF or DDM.

So with Jazz, we explain that the $170.00 target is based on 20.7x and 15.3x EV/EBITDA multiples for the comps, and a discount rate of 8.07% and Terminal FCF growth rate of 0.3% in the DCF.

Next: Operations and Financial Summary

Next, you’ll see a section with lots of graphs and charts detailing the company’s financial performance, market share, and important metrics and ratios.

For a pharmaceutical company like Jazz, you might see revenue by product, pricing and # of patients per product per year, and EBITDA margins.

For a commercial bank like Shawbrook, you might see loan growth, interest rates, interest income and net income, and regulatory capital figures such as the Common Equity Tier 1 (CET 1) and Tangible Common Equity (TCE) ratios:

This section of the report explains how the analyst or equity research associate forecast the company’s performance and came up with the numbers used in the valuation.

The valuation section is the one that’s most similar in a research report and a stock pitch.

In both fields, you explain how you arrived at the company’s implied value, which usually involves pasting in a DCF or DDM analysis and comparable companies and transactions.

The methodologies are the same, but the assumptions might differ substantially.

In research, you’re also more likely to point to specific multiples, such as the 75 th percentile EV/EBITDA multiple, and explain why they are the most meaningful ones.

For example, you might argue that since the company’s growth rates and margins exceed the medians of the set, it deserves to be valued at the 75 th percentile multiples rather than the median multiples:

Investment Thesis, Catalysts, and Risks

This section is short, and it is more of an afterthought than anything else.

We do give reasons for why these companies might be mis-priced, but the reasoning isn’t that detailed.

For example, in the Shawbrook report we state that the U.K. mortgage market might slow down and that regulatory changes might reduce the market size and the company’s market share:

Those are legitimate catalysts, but the report doesn’t explain their share-price impact in the same way that a stock pitch would.

Finally, banks present Investment Risks mostly so they can say, “Well, we warned you there were risks and that our recommendation might be wrong.”

By contrast, buy-side analysts present Investment Risks so they can say, “There is a legitimate chance we could lose 50% – let’s hedge against that risk with options or other investments so that our fund does not collapse .”

How These Reports Both Differ from the Corresponding Stock Pitches

The Jazz equity research report corresponds to a “Long” pitch that’s much stronger:

• We estimate its intrinsic value as $180 – $220 / share , up from $170 in the report.
• We estimate the per-share impact of each catalyst: price increases add 15% to the share price, more patients from marketing efforts add 10%, and later-than-expected generics competition adds 15%.
• We also estimate the per-share impact from the risk factors and conclude that in the worst case , the company’s share price might decline from $130 to $75-$80. But in all likelihood, even if we’re wrong, the company is simply valued appropriately at $130.
• And then we explain how to hedge against these risks with put options.

The same differences apply to the Shawbrook research report vs. the stock pitch, but the stock pitch there is a “Short” recommendation where we claim that the company is overvalued by 30-50%.

And that sums up the differences perfectly: A Short recommendation with 30-50% downside in a stock pitch turns into a “Hold” recommendation with roughly equal upside and downside in a sell-side research report.

I’ve been harsh on equity research here, but I don’t want to disparage it too much.

There are many positives: You do get more creativity than in IB, it might be better for hedge fund or asset management exits, and it’s more fun to follow companies than to grind through grunt work on deals.

But no matter how you slice it, most equity research reports are watered-down stock pitches.

So, make sure you understand the “strong stuff” first before you downgrade – even if your long-term goal is equity research.

You might be interested in:

• The Equity Research Analyst Career Path: The Best Escape from a Ph.D. Program, or a Pathway into the Abyss?
• Private Equity Regulation : 2023 Changes and Impact on Finance Careers
• Stock Pitch Guide: How to Pitch a Stock in Interviews and Win Offers

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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Read below or Add a comment

15 thoughts on “ What’s in an Equity Research Report? ”

Hi Brian, what softwares are available to publish Research Reports?

We use Word templates. Some large banks have specialized/custom programs, but not sure how common they are.

Is it possible if you can send me a template in word of an equity report? It will help the graduate stock management fund a lot at Umass Boston.

We only have PDF versions for these, but Word should be able to open any PDF reasonably well.

Do you also provide a pre constructed version of an ER in word?

We have editable examples of equity research reports in Word, but we generally only share PDF versions on this site.

Hey Brian Can you please help me with coverage initiated reports on oil companies. I could not find them on the net. I need to them to get equity research experience, after which only I will be able to get into the field. I searched but reports could not be found even for a price. Thanks

We have an example of an oil & gas stock pitch on this site… do a search…

https://mergersandinquisitions.com/oil-gas-stock-pitch/

Beyond that, sorry, we cannot look for reports and then share them with you or we’d be inundated with requests to do that every day.

No worries. Thanks!

Hi! Brian! Do u know how investment bankers design and layout an equity research? the software they use. like MS Word, Adobe Indesign or something…? And how to create and layout one? Thanks

where can I get free equity research report? I am a Chinese student and now study in Australia. Is the Morning Star a good resource for research report?

Get a TD Ameritrade to access free reports there for certain companies.

How do you view the ER industry since the trading commission has been down 50% since 2007. And there are new in coming regulation governing the ER reports have to explicitly priced and funds need to pay for the report explicity rather than as a service comes free with brokerage?

In addition the whole S&T environment is becoming highly automated.

People have been predicting the death of equity research for over a decade, but it’s still here. It may not be around in 100 years, but it will still be around in another 10 years, though it will be smaller and less relevant.

Yes, things are becoming more automated, but the actual job of an equity research analyst or associate hasn’t changed dramatically. A machine can’t speak with investors to assess their sentiment on a company – only humans can do that.

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The Comprehensive Guide to Equity Research

When it comes to making money in the stock market, there is no one silver bullet. If you want to be successful, you need to use a variety of strategies and tools at your disposal. One of the most important tools that any investor can use is equity research. Equity research can give you an edge over the competition by helping you make informed investment decisions. In this guide, we will discuss what equity research is, how it works, and why it is so important for investors. We will also provide tips on how to find high-quality equity research reports. So whether you are a seasoned investor or just starting out, this guide has something for you!

On the other hand, if you are looking to boost your ROI on a private equity exit, then you might want to read How ESG Will Sweeten Your Private Equity Exit!

What is equity research and what does it entail?

What is the role of equity research analysts, how does an equity research report help investors make informed decisions, tips for finding high-quality equity research reports, the benefits of using equity research in your investment strategy.

Equity research is the process of analyzing a company’s financial statement in order to make better-informed investment decisions. It involves looking at a variety of factors, including the company’s financial health, its competitive position, and the overall market conditions.

Equity research can be used to make both buy and sell decisions. When equity research is performed for a buy decision, the goal is to find companies that are undervalued by the market and have the potential to generate above-average returns.

For sell decisions, the goal is to identify companies that are overvalued and likely to underperform in the future. Equity research is an important tool for investment professionals, but it can also be useful for individual investors who are looking to make informed decisions about where to invest their money.

Equity research analysts play an important role in the financial world. They provide analysis and recommendations to clients, including institutional investors such as banks and hedge funds, about which stocks to buy and sell.

Equity analysts begin their research by reviewing a company’s financial statements and other publicly available information. This includes reading company financial filings, attending earnings calls, and speaking with industry experts. They then use this information to build models that predict the company’s future revenue, earnings, and cash flow.

In addition, equity analysts also conduct interviews with the company’s management team, customers, and suppliers in order to get a better understanding of the business.

Based on this research, analysts produce reports that offer their thoughts on a company’s prospects and provide guidance on whether to buy, hold, or sell its stock. While equity research analysts work for banks, asset managers, and other financial institutions, they are also available to the general public through equity research reports that are published online.

While equity research can be time-consuming and complex, it is an essential part of the investment process. By conducting thorough research on companies, an equity research analyst helps investors make more informed decisions about where to allocate their capital.

Equity research reports provide a detailed analysis of a company’s financials, business model, and competitive landscape. They also offer insights into the market trends that may impact the company’s performance. As a result, equity research reports can help investors identify companies that are well-positioned to succeed in the current market environment. While no research report can guarantee success, it can provide investors with the information they need to make better-informed investment decisions.

When you’re looking for equity research reports, it’s important to find ones that are accurate and unbiased. After all, these reports can play a major role in your investment decisions. Here are a few tips to help you find quality equity research reports:

1. Look for well-established firms

Equity research is a competitive business, and the best equity research firms tend to be well-established and have a reputation to uphold. These firms are usually more careful about the quality of their research and have more resources to devote to producing high-quality reports.

In addition, these firms tend to be more independent and objective in their research since they are not as reliant on investment banking business as the companies they cover. As a result, if you are looking for high-quality equity research, it is generally best to focus on well-established firms. If you prefer the white glove approach, you can always find of one the many independent equity research boutiques.

2. Pay attention to equity analyst credentials

One way to evaluate the quality of an equity research report is to look at the credentials of the equity analyst. Check for experience in the industry and a good track record of accurately predicting stock performance. These are signs that the equity research analyst knows what they’re talking about and can be trusted to give reliable insights.

When you’re making investment decisions, you want to base them on the best information possible, so it’s worth taking the time to find reports from analysts with strong credentials.

3. Read multiple reports on the same company

Looking at multiple reports on the same company is a great way to get a complete picture of what is going on. This is because each report will highlight different aspects of the company. One report may focus on the financials, while another may focus on the products and services. By reading multiple reports, you can get a more well-rounded view of the company.

Additionally, you can compare and contrast the different reports to see where they agree and where they differ. This can help you to form your own opinion about the company and make more informed investment decisions.

4. Be wary of investment recommendations

One important tip to keep in mind when looking for high-quality equity research reports is to be wary of investment recommendations. Equity research analysts are not licensed financial advisors, and their primary goal is to provide information, not to give investment advice.

As such, their stock recommendations should be viewed as one possible piece of information to consider but not as a definitive buy or sell signal.

When an equity research analyst does make stock recommendations, it is important to carefully consider the reasoning behind the recommendation and to weigh it against other factors before making any investment decisions.

5. Pay attention to the date of the report

Obviously, you’ll want to make sure that the information is up-to-date. Reports that are more than six months old may not accurately reflect the current state of the company. The company may have had a major event, such as a new product release, or a change in management, that has affected its financial performance.

Additionally, equity research analyst ratings and price targets can change over time, so it’s important to make sure you’re using the most recent data.

6. Read the report thoroughly before making any decisions

Equity research reports can be incredibly helpful when you’re trying to make investment decisions. However, it’s important to read the entire report before making any decisions. Don’t just focus on the parts that confirm your existing beliefs. Instead, read the report thoroughly and consider all of the information before making any decisions.

Equity research reports can provide invaluable insights into potential investments, but you need to be sure that you’re reading the entire equity research report before making any decisions.

7. Be willing to challenge your assumptions

As an investor, it’s important to always be willing to challenge your assumptions. Even the best equity research reports may contain information that contradicts your own analysis. However, if you’re not open to re-evaluating your position, you could miss out on a great opportunity.

By following these tips, you can help ensure that you are getting high-quality equity research reports that will provide valuable insights into your investments.

Equity research is a type of analysis that assesses the value of a company’s stock. Equity researchers typically work for investment banks, mutual funds, or hedge funds. However, there is a growing trend of individual investors using equity research to inform their investment decisions. There are many benefits of using equity research, including:

1. Helps to identify potential investments

An equity research report can help investors identify companies that are undervalued by the market and may be ripe for investment. By analyzing the financial statements of a company, an equity research analyst can provide investors with an assessment of its true worth and potential for growth.

This information can be invaluable in making investment decisions, as it can help to identify opportunities that may have been overlooked by the market. In addition, equity research can provide insights into a company’s competitive strengths and weaknesses, which can play a vital role when deciding to invest.

2. Gives an overview of a company

One of the benefits of using equity research in your investment strategy is that it will provide you with an overview of a company’s business model, financials, competitors, and growth prospects. This information can be very helpful in making investment decisions about whether or not to invest in a company.

3. Analyzes risk

Another benefit of using an equity research report in your investment strategy is that analysts will often assess the risks associated with investing in a particular company. This can help investors be more clear about where to allocate their capital.

Equity research can help you to identify potential risks and learn more about a company before making an investment. This information can be invaluable in helping you to protect your investments and reach your financial goals.

4. Saves time

When you use equity research in your investment strategy, it can save you a lot of time. Equity research includes information gathering, analysis, and recommendations, which can all be time-consuming tasks if you try to do them yourself. By using equity research, you can outsource these tasks to professionals who have the expertise and experience to do them quickly and effectively.

This can free up your time so that you can focus on other aspects of your investment strategy or simply enjoy your life outside of investing. In today’s fast-paced world, saving time is a valuable commodity, and equity research can help you do just that.

5. Can be used in conjunction with other tools

Equity research can be used in conjunction with other tools. This includes technical analysis and fundamental analysis. Technical analysis is a method of evaluating securities by analyzing market data, such as price and volume.

Fundamental analysis is a method of evaluating a security by analyzing its financial statements. By using both methods, investors can get a complete picture of any security and decide what’s best for them.

6. Helps you stay disciplined

When it comes to investing, discipline is key. Without it, you can easily get caught up in the emotions of the market and make decisions that are not based on sound logic. This is where equity research comes in.

By providing you with all of the information you need about a company, equity research can help you stay disciplined and focused on your investment strategy. In addition, by using equity research alongside other tools, such as technical analysis, you can further increase your chances of making successful investments.

7. Gives you an edge over other investors

Utilizing equity research can give you an advantage over other investors who do not. Equity research provides an extensive analysis of a company, its financials, products, and all its prospects. This information is not always readily available or easy to find, so by using it, you can give yourself an edge in your investment strategy.

What is investment banking?

Investment banking is a financial institution that helps companies raise money by issuing and selling securities. Investment banks also help companies by providing advice on mergers, acquisitions, and other strategic decisions.

In addition to working with companies, investment banks also work with governments and other organizations. Investment banking is a complex and risky business, but it can be very profitable for both firms and their employees.

Investment bankers typically have a bachelor’s degree in business or economics. Many investment bankers also have an MBA or a master’s degree in finance. But eventually, it all comes down to the experience and ability to handle financial and nonfinancial reports and make financial models.

What is the role of investment bankers?

Investment bankers are financial professionals who work with clients to raise capital by issuing and selling securities. They typically work for banks, but there is a growing number of independent firms. Investment bankers typically have a four-year degree in business or economics, although some jobs may require a master’s degree. In addition to their educational background, investment bankers must be very good at multitasking, managing large sums of money, and working under pressure.

The role of an investment banker is to act as a middleman between the company that wants to issue securities and the investors who want to buy them. Investment bankers typically work with large corporate clients, but they may also work with smaller companies, governments, and even individuals.

They first assess the needs of their client and then develop a plan to raise the needed capital. This plan will include finding potential investors, negotiating terms, and then issuing and selling the securities. Once the securities have been sold, the investment banker will monitor the market conditions to ensure that the securities maintain their value.

Investment bankers play an important role in our economy by helping companies raise the capital they need to grow and expand. They provide an essential service by connecting companies with potential investors and helping to ensure that investments are made wisely.

What are the types of the investment banking industry?

Investment banking can generally be classified into one of three categories:

1. Bulge bracket banks

Bulge bracket banks are the largest and most prestigious investment banks in the world. They typically have a global reach, and their clients include major corporations, governments, and financial institutions.

Bulge bracket banks is a term that was coined in the 1970s, and it refers to the top tier of investment banks. The name comes from the fact that these banks are much larger than their competitors, and they often have a dominant market share.

Some of the largest bulge bracket banks include Goldman Sachs, JPMorgan Chase, and Morgan Stanley. These banks are often involved in the most complex and high-profile transactions, and they have a team of experienced professionals who can provide a wide range of services.

Bulge bracket banks typically have a strong presence in key financial markets around the world, and they are often able to offer their clients preferential treatment.

2. Middle-market banks

Middle-market banks are a type of investment banking that focuses on providing capital to entities with annual revenue of $50 million to $1 billion. These banks usually have fewer than 500 employees and are headquartered in the United States. They typically provide loans, lines of credit, and other financial services to small and medium-sized businesses.

Middle-market banks are typically divided into two categories: regional banks and national banks. Regional banks are typically smaller and focused on a specific geographic region, while national banks are larger and have a nationwide presence. Some middle-market banks may also have international operations.

3. Boutique banks

The third type of investment banking industry is boutique banks. They are smaller, more nimble institutions that often focus on providing specialized services to a particular type of customer, while some focus on high-net-worth individuals. For example, some boutique banks may focus on small businesses, while others may cater to a specific niche, such as healthcare or technology.

Because they are less beholden to shareholders and other stakeholders, boutique banks can often offer more personalized service than their larger counterparts. As a result, these institutions are quickly becoming a popular choice for those who want a more intimate banking experience.

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Is equity research the same as investment banking?

No, equity research is not the same as investment banking. Equity research is focused on providing analysis and recommendations to institutional investors, while investment banking is focused on providing corporate finance and capital market services to issuers of securities.

While there is some overlap between the two fields, they are distinct disciplines with different clientele, objectives, and activities. Equity research analysts conduct independent research and collaborate with portfolio managers to make investment decisions, while investment bankers work with issuers of securities to underwrite new debt and equity issues and provide other financial advisory services.

Thus, while both equity research and investment banking are important parts of the financial services industry, they are distinct occupations that serve different purposes.

Final thoughts

Equity research is a process of evaluating a company and its securities with the aim of determining its investment potential. By providing an in-depth analysis of a company, equity research can help you make sound decisions about what investments are best for you. It can also give you an edge over other investors who do not have access to this information. Investment bankers play an important role in our economy by helping companies raise the money they need to grow and expand. They provide an essential service by connecting companies with potential investors and helping to ensure that investments are made wisely.

Who can become an equity research analyst?

In order to become an equity research analyst, one must have a bachelor’s degree in a relevant field such as business, finance, or economics. In addition, it is helpful to have experience working in the financial sector. Finally, an equity research analyst must be able to effectively communicate their findings to both clients and colleagues.

What is financial modeling?

Financial modeling is the process of creating a detailed model of a financial situation. It is a tool that is used by investment professionals to help make informed decisions about investments, projects, or businesses. Financial models are based on extensive industry research and are used by portfolio managers and senior analysts at investment firms to make recommendations about which stocks or other assets to buy or sell. Private companies also use financial modeling to raise capital from investors. Financial modeling can be used to predict things like future cash flow, profitability, and risk. It can also be used to compare different investment options or to assess the impact of changing economic conditions. Financial modeling is a powerful tool, but it requires careful planning and analysis to produce accurate results.

What is private equity?

Private equity is an alternative asset class that refers to the investment of capital in privately held companies. A private equity fund manager typically invests in companies that are not listed on public stock exchanges and often takes an active role in driving the growth and management of these businesses. Similarly, a private equity analyst conducts due diligence on potential investments and provides recommendations to the fund managers. If you’re interested in getting into equity research, you’ll need to have experience in finance and accounting, as well as strong analytical skills.

What is an investment thesis?

An investment thesis is an argument or set of arguments used to justify why a particular security or group of securities is worth investing in. A strong thesis will be clear and concise, research-based, and backed by data. It should also be tailored to the investor’s specific goals and risk tolerance . An investment thesis can be applied to a wide range of investments, from stocks and bonds to real estate and commodities. Ultimately, the goal of an investment thesis is to help investors make informed decisions about where to put their money.

How can I get an equity research job?

There are a few ways to break into equity research from the outside. One is to network with people you know who work on Wall Street. Another is to look for job postings online, either on job boards or on the websites of an investment bank, wealth management firm, or any investment firm. Finally, you can try cold-emailing equity researchers at firms you’re interested in working for. Keep in mind that most equity research jobs are filled by people who have already worked as investment banking analysts or research associates at an investment bank. Aspiring equity researchers also need to be aware of the earnings season schedule and be able to produce high-quality research during that time. Equity research careers can be extremely rewarding, both financially and professionally. With a little effort, you can find a job that’s a perfect fit for your skills and interests.

What is the job of an equity research associate?

Equity research associates are responsible for analyzing companies and industries in order to support the investment decisions of senior analysts and portfolio managers. This involves conducting fundamental analysis, building financial models , and writing research reports. An equity research associate must have a strong understanding of accounting and finance, as well as experience with Excel and other financial analysis software. In addition, an equity research associate must be able to effectively communicate the findings to both senior analysts and clients. If the equity research associate is successful in this role, he may go on to become an equity research analyst or senior analyst.

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Equity Research Analysis: Finance Explained

Evaluating a company's financial health can be daunting for those without a background in finance.

This guide on equity research analysis aims to demystify key concepts and provide a comprehensive overview of the fundamentals behind conducting analysis on stocks.

We will define the role of equity research analysts, explain core methodologies like financial modeling and valuation, and outline the components that make up an equity research report. Whether you're considering a career in equity research or simply want to better understand the field, this post serves as an accessible starting point.

Introduction to Equity Research Analysis

Equity research analysts play a crucial role in the financial industry by providing in-depth analysis and investment recommendations on stocks and companies. Their insights help guide investment decisions across institutional investors, hedge funds, mutual funds, and more. This section explores the importance of equity research and the key skills needed to pursue this career path.

Defining the Role of Equity Research Analysts

Equity research analysts are financial experts who assess the business fundamentals, financial health, and valuation of public companies. Through financial modeling, ratio analysis, and discounted cash flow projections, analysts forecast future earnings and stock price targets for companies under coverage.

The core responsibilities of an equity research analyst include:

• Researching companies within a specific sector to deeply understand their operations, competitive landscape, growth drivers, and risk factors
• Building detailed financial models to analyze historical financial performance and project future earnings
• Writing equity research reports to communicate investment theses, stock recommendations (e.g. buy, hold, sell), and price targets
• Conducting calls, meetings, and conferences with investors to convey findings and answer questions

Strong financial modeling, valuation, writing, and communications skills are key for success as an analyst. Ongoing financial statement and industry analysis is also crucial to evaluate companies.

Equity Research in Investment Banks

Most equity researchers work for investment banks, either on the sell-side or buy-side.

Sell-side analysts work for investment banks that provide research to external clients. They publish equity research reports to provide data-driven stock recommendations. Their compensation comes from the trading commissions generated by their research.

Buy-side analysts work for institutional investors like mutual funds, hedge funds, and pension funds that directly invest capital. They consume the research from sell-side analysts to guide their firm's investment decisions and stock-picking strategy.

Investment banks greatly value equity research to support their sales, trading, and deal advisory services. By producing high-quality equity research, they can win more investor clients.

Is Equity Research a Good Career?

A career in equity research offers strong compensation, intellectual challenge, and significant influence. However, the path also demands long hours, intense pressure, and constant competition.

The base pay for a first-year analyst typically falls between $65K-$85K, with bonuses bringing total first-year compensation to approximately $100K. More experienced analysts can earn over $500K, with managing directors earning upwards of $1-2 million.

However, analysts often work between 70-100 hours per week during earnings seasons and face immense pressure to deliver accurate earnings estimates and stock calls. The job requires strong resilience.

Ultimately, equity research represents an attractive path for skilled financial analysts who thrive under pressure and relish the challenge of predicting stock performance through in-depth data modeling and analysis.

Who Reads Equity Research Reports?

The primary consumers of equity research reports include:

• Institutional investors : Asset managers, hedge funds, pension funds, insurance firms
• RIA firms : Registered investment advisors (RIAs), wealth management firms
• Retail investors : Individual investors, traders
• Corporate executives : CFOs, financial planning and analysis (FP&A) teams

By leveraging these reports to guide investment decisions, these professionals aim to beat market benchmarks and generate alpha returns. This need for actionable insights and timely financial analysis is what makes equity research so indispensable.

Overall, equity analysts serve a vital function - powering the investment decisions that drive capital markets and corporate valuations worldwide. Their financial modeling expertise provides the foundation for informed stock-picking and portfolio management across the institutional and retail landscape.

What is equity analysis in finance?

Equity analysis refers to the analysis of companies and sectors to provide investment recommendations on which stocks to buy or sell. It is a key function performed by sell-side analysts at investment banks and research firms.

The main goals of equity analysis are:

To deeply understand a company's financial performance, business model, industry dynamics, management team, competitive landscape, growth prospects, risk factors, and valuation. This involves analyzing financial statements, earnings reports, company filings, economic data, and more.

To develop financial models and valuation estimates for companies. Analysts build detailed Excel models projecting future revenues, expenses, profits, cash flows, and other key financial metrics.

To produce investment research reports and recommendations for clients. Analysts synthesize their research into analyst reports that provide a buy, sell, or hold recommendation on a stock along with price targets and investment theses.

To communicate ideas effectively to investment clients. Analysts present their ideas to portfolio managers at asset management firms and other institutional investors who ultimately decide whether to act on the recommendations by buying or selling stocks.

The end goal is to enable investment clients to make more informed decisions on which stocks to invest in to achieve their portfolio objectives. Quality equity analysis is vital for stock picking and investment performance.

What is equity research in finance?

Equity research involves analyzing companies and industries to determine the value and potential growth of stocks and make investment recommendations. It plays a key role in investment decisions in the financial sector.

Equity research analysts conduct in-depth research on companies, industries, markets, and economic trends. Their main responsibilities include:

• Financial modeling to forecast company earnings and cash flows
• Valuation analysis using methods like discounted cash flow models, peer comparisons, and sum-of-the-parts
• Developing buy, sell, or hold recommendations on stocks
• Publishing research reports and notes for clients
• Conducting meetings and calls with management teams and investors

The end goal is to predict stock performance and provide guidance to asset managers, hedge funds, pensions, investment advisors, and other institutional investors. Quality equity research helps these professionals make prudent investment choices.

So in summary, equity research involves analyzing public companies to determine their business value and growth prospects. It aids investments in stocks and other equity instruments. Equity analysts are vital for stock picking and portfolio decisions made by institutional investors.

What is the difference between equity research analyst and financial analyst?

Financial analysts consider a company's overall financial health and performance across all areas of the business. Equity research analysts focus specifically on a company's stock performance and valuation.

The key differences include:

Scope: Financial analysts look at the big picture, including a company's financial statements, ratios, metrics, etc. Equity analysts drill down into factors affecting a stock's potential value and performance.

Goals: Financial analysts assess a company's profitability, efficiency, leverage, liquidity, working capital, etc. Equity analysts forecast stock performance, set price targets, and make buy/sell recommendations.

Models: Financial analysts build models of the overall business, like 3-statement models. Equity analysts build DCF and relative valuation models focused on stocks.

Outputs: Financial analysts output internal reports and analysis. Equity analysts publish equity research reports for external clients.

Clients: Financial analysts support internal business decisions. Equity analysts provide recommendations to external investors and clients.

In summary, financial analysts take a company-wide internal view, while equity analysts focus externally on stock performance, valuation, and investor recommendations. Equity research sits at the intersection of financial analysis and investments.

What do you know about equity research analysis?

Equity research analysis involves evaluating public companies to provide recommendations to investors on whether to buy, hold, or sell shares. As an equity research analyst, I conduct in-depth financial modeling and valuation analysis on companies across various sectors.

Some key responsibilities and skills in equity research analysis include:

• Building detailed financial models in Excel to forecast future earnings and cash flows
• Performing valuation analysis using methods like discounted cash flow, comparables, and precedent transactions
• Assessing market trends, industry dynamics, and macroeconomic factors that may impact stock performance
• Developing an investment thesis and target price based on intrinsic value estimates
• Writing equity research reports to communicate analysis, recommendations, and investment risks to clients
• Conducting meetings with management teams to gain insights on business strategy and financial performance

To succeed as an analyst, individuals need strong financial and accounting knowledge, modeling proficiency, valuation capabilities, writing skills, and the ability to develop persuasive investment theses backed by thorough analysis. Ongoing learning and keeping up with market developments is also critical.

Equity research serves an important role in promoting efficient capital markets by covering companies, unearthing information for investors, and enabling clients to make informed investment decisions based on rigorous analysis. Overall, it's a challenging yet rewarding career path for those passionate about the stock market and financial analysis.

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Mastering financial analysis and modeling.

Financial analysis and modeling are critical skills for equity research analysts. Here is a guide to developing expertise in these areas:

Financial Modeling Techniques and Skills

To create accurate financial models, analysts need to have strong Excel skills and an understanding of key modeling methods:

3 Statement Model : Build interconnected financial statements to forecast a company's future performance. This includes the income statement, balance sheet, and cash flow statement.

DCF Models : Use discounted cash flow analysis to estimate a company's intrinsic value based on projected future cash flows.

Excel Skills : Financial models rely heavily on Excel for analysis. Analysts should have advanced skills like keyboard shortcuts, lookup functions, data validation, macros, and pivot tables.

Valuation Methods in Equity Research

Analysts use valuation models to determine target prices and make buy/sell recommendations:

Discounted Cash Flow (DCF) : Estimate intrinsic value based on future cash flow projections.

Comparable Companies : Benchmark valuation metrics like P/E ratios against similar companies.

Precedent Transactions : Value based on past M&A deals in the sector.

Financial Analysis Courses and Equity Research Books

Useful resources for improving financial analysis skills:

Wall Street Prep : Leading e-learning courses for financial modeling, valuation, accounting, and other technical skills.

Rosenbaum & Pearl : Widely regarded book covering best practices in equity research.

Accounting Textbooks : Review books on financial accounting to strengthen understanding of financial statements.

The Importance of Financial Statements

Mastering financial statements is critical for modeling and analysis:

Income Statement : Shows revenue, expenses, and profitability over a period.

Balance Sheet : Snapshot of assets, liabilities, and shareholder equity on a certain date.

Cash Flow Statement : Details cash inflows and outflows from operations, investments and financing.

Analysts use financial statements to assess past performance, model future projections, and value companies. Ongoing review of statements is essential.

Navigating the Equity Research Process

Developing earnings estimates and forecasts.

During earnings season, equity research analysts develop earnings estimates and forecasts to inform investment decisions. This involves analyzing past financial performance, industry trends, and management guidance to predict a company's future earnings.

Key steps include:

• Gathering data from financial statements, earnings calls, SEC filings, and other sources
• Building financial models to forecast revenues, expenses, and other metrics
• Making assumptions about growth rates, profit margins, and other drivers of performance
• Comparing estimates to consensus forecasts from other analysts
• Revising models as new information becomes available

Accurate earnings estimates are vital for equity valuation and recommending stock prices.

Equity Research Analysts' Approach to Financial Statements

Equity research analysts thoroughly dissect companies' financial statements, including the:

• Income statement - Assesses profit margin trends over time
• Balance sheet - Evaluates capital structure and working capital
• Cash flow statement - Analysis of capital expenditures and cash generation

Key techniques include ratio analysis, variance analysis, and cross-sectional comparisons. This helps determine the quality and sustainability of earnings and cash flows.

Crafting an Equity Research Report

The equity research process culminates in a research report summarizing the analyst's findings and recommendations. This detailed document includes:

• Company overview and investment thesis
• Industry analysis
• Competitive landscape
• Management and corporate governance assessment
• Valuation and price targets
• Financial forecasts
• Investment risks

The report allows clients to evaluate the analyst's logic and assumptions behind their recommendations.

Equity Research Course: A Pathway to Excellence

An equity research course helps analysts build core competencies, including:

• Financial statement modeling
• Valuation methodologies
• Industry and company analysis
• Financial analysis and projections
• Report writing and presentation skills

With practical training and hands-on experience analyzing real companies, analysts can gain investor-level skills for buy-side and sell-side career opportunities.

Equity Research Firms and Industry Landscape

Equity research firms play a crucial role in the financial services industry by providing in-depth analysis and recommendations on investment opportunities. Here is an overview of the different types of firms and their functions.

The Spectrum of Equity Research Firms

There are a few main categories of equity research firms:

Investment Banks: The research division of investment banks produces research to support their deal flow and trading businesses. Some top banks include Goldman Sachs, Morgan Stanley, and J.P. Morgan.

Independent Research Firms: These firms focus solely on producing unbiased research for institutional investor clients. Examples are Morningstar, CFRA, and Wolfe Research.

Buy-Side Firms: Asset managers, hedge funds, and other institutional investors have in-house research teams to inform their investment decisions.

The output and incentives vary across the different firm types. Investment banks incentivize analysts to drive trading volume, while independent firms aim for purely objective analysis.

Equity Research and Asset Management

Asset managers and other buy-side firms leverage equity research to identify investment opportunities and risks:

Research helps determine which stocks to buy/sell and at what valuations. Analyst reports provide detailed models and growth assumptions.

Ongoing coverage informs portfolio adjustments. As analysts update earnings estimates, price targets, and stock ratings, portfolio managers incorporate these changes.

Buy-side firms also conduct their own research. But sell-side analyst insight supplements internal capabilities.

By leveraging external research, buy-side firms make more informed investment decisions on behalf of their clients.

The Intersection of Equity Research and Sales & Trading

Within investment banks, equity research works closely with sales and trading divisions:

Research analysts publish reports and models to highlight investment theses. The sales team leverages this content to generate trade ideas for clients.

Trading desks use published research to help facilitate client orders and provide market liquidity. Research also supports trading strategies.

Through conferences, roadshows, and calls, analysts directly interface with the buy-side alongside salespeople.

So while research teams provide objective analysis, their output enables and supports the deal flow and trading operations that drive bank revenue.

Equity Research Beyond Stocks: Commodity Trading and More

While most equity research focuses on stocks, similar analysis principles apply to other asset classes:

Commodity trading firms have research teams evaluating supply/demand dynamics across resources from oil to metals to agriculture.

Quant hedge funds take an analytical approach to research everything from stocks to foreign exchange in systematic trading strategies.

Venture capital and private equity firms conduct due diligence around growth prospects, competition, and valuation for private startup investments.

So while the term "equity research" is often associated with stock analysis, fundamentally it represents a research-driven, analytical approach to informing investment decisions across asset classes.

Building a Career in Equity Research

Equity research can be a rewarding career for those interested in financial analysis and investing. Here is some guidance on pursuing a career in this field.

Equity Research Analyst: A Comprehensive Job Description

An equity research analyst is responsible for researching and analyzing companies and industries to make informed recommendations to clients on buying, selling, or holding stocks and other securities. Key responsibilities include:

• Conducting financial modeling and valuation analysis on companies
• Developing detailed financial models and earnings forecasts
• Performing ratio analysis on financial statements
• Writing equity research reports and presenting recommendations
• Engaging with clients to understand their investment goals and objectives
• Monitoring economic, industry, and company-specific trends and news

Equity research analysts typically work long hours, especially during quarterly earnings seasons when they must analyze results and update models and recommendations. Strong Excel, financial statement analysis, and valuation skills are critical.

Finding Equity Research Jobs: A Guide

There are a few common career paths for entering equity research:

• Complete an internship at an investment bank or other financial services firm during university studies
• Start as a junior analyst at an investment bank or independent research firm after graduation
• Transition from a related role like investment banking or accounting
• Obtain a graduate degree such as an MBA with a focus on finance

The best ways to find open equity research roles include:

• Networking with professionals at industry events and conferences
• Checking job boards like eFinancialCareers and Indeed
• Directly browsing careers pages of banks and financial firms

Getting a referral from someone already working in equity research can greatly boost your chances of securing an interview and job offer.

Essential Skills for Success in Equity Research

To excel as an equity research analyst, these skills are vital:

• Financial modeling: Building detailed financial models in Excel to analyze companies and create earnings forecasts
• Valuation analysis: Using DCF, comparables, precedent transactions, and other methodologies to value companies and recommend buy/sell ratings
• Communication: Conveying research and recommendations clearly to clients via written reports and verbal presentations
• Financial statement analysis: Thoroughly analyzing income statements, balance sheets, and cash flow statements using ratio analysis to assess company performance
• Research: Continuously researching companies, industries, macroeconomic trends, regulations, and other factors that may impact investments
• Attention to detail: Carefully auditing financial models and research for accuracy before presenting to avoid mistakes

Ongoing training in new valuation methodologies, accounting rules, and financial analysis best practices is also important for career development.

How to Be a Good Financial Analyst: A Guide

Here are some tips for excelling as a financial analyst in equity research:

• Develop expertise in an industry or sector: Become the “go-to” analyst for your specialty area
• Build strong financial models: Create dynamic models with sensitivities to test assumptions
• Back up recommendations: Use facts, ratios, metrics, and trends to support your buy/sell ratings
• Clearly communicate research: Write exceptional reports and deliver compelling presentations
• Continuously upgrade skills: Take courses and certifications to stay current on practices
• Network internally and externally: Connect with colleagues, clients, investors, and executives

Staying curious, humble, and constantly seeking new knowledge will help you build authority and trust as an equity research analyst over time.

Conclusion: The Value of Equity Research Analysis

Summarizing key takeaways.

Equity research analysis provides critical insights that inform investment decisions across the financial sector. Key takeaways include:

Financial modeling builds the foundation for valuation and analysis of a company's financial performance. Models enable scenario analysis using historical trends and projections.

Valuation methodologies like DCF, comparables, and precedent transactions, determine the intrinsic value of a stock to identify over/undervalued opportunities.

Earnings estimates and ratio analysis offer crucial inputs for models and valuations. They facilitate benchmarking to sector peers.

Equity research combines quantitative analysis with qualitative assessments of management, competitive positioning, risks, and growth prospects.

The Future of Equity Research

As technology progresses, equity research is likely to become more data-driven through alternative datasets and advanced analytics like machine learning. Regulation may also increase disclosure requirements. Key developments include:

Automation of financial models and reporting for improved efficiency and consistency

Emergence of alternative data sources beyond financial statements

Mainstreaming of ESG considerations in valuation and investment recommendations

Final Thoughts on a Career in Equity Research

A career in equity research offers intellectual stimulation to those interested in understanding economic forces and corporate finance. It develops transferrable skills in modeling, analysis, and valuation. However, the dynamic nature calls for keeping up with markets, tech disruption, and evolving methodologies. Overall, equity research will continue enabling capital flows to value-creating companies.

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The Value of Equity Research

Equity research is an invaluable asset for anyone looking to stay up-to-date on market and industry trends. In this guide, you will learn about the type of information contained in equity research, the value it offers to corporate professionals, and how the most advanced teams are already leveraging the expertise of Wall Street’s top analysts to inform critical business decisions.

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Introduction.

Equity research, which forms a multi-billion dollar industry for investment banks, is produced by thousands of analysts worldwide to provide the market with valuable information on companies, industries, and market trends. Today, over 90% of equity research is consumed by fund managers, who have the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For corporate strategy professionals who lack this access, however, equity research has historically been challenging to obtain and navigate.

To help corporations circumvent these challenges, AlphaSense has introduced Wall Street Insights, the first and only equity research collection purpose-built for the corporate user. Through the AlphaSense platform, any business making strategic plans or product decisions, conducting competitive analysis, evaluating M&A, or engaging in investor relations can now tap into the deep industry expertise of Wall Street’s top analysts.

What is Equity Research?

Equity research is developed by sell-side firms to help investors and hedge fund managers discover market opportunities and make informed investment decisions. Increasingly, this expert analysis has also been identified by forward-looking corporations as a highly valuable tool to inform strategic decision-making.

There are thousands of sell-side firms that employ expert analysts around the globe to write equity research for the market. The majority of firms producing equity research are hyper-focused and only have one or two analysts developing reports on a specific industry. However, larger firms, such as Morgan Stanley and Bank of America, collectively employ thousands of analysts to write reports on thousands of public companies–covering everything from TMT giants to niche products.

Equity research analysts are deep subject matter experts who are often former executives, industry veterans, or academics. These analysts conduct in-depth research and publish reports on corporations, industries, and macro trends, offering an expert lens into a subject.

Historically, over 90% of equity research was consumed by buy-side fund managers, who had the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For buy-side professionals, equity research is a critical tool to inform sound investment decisions backed by expert insights.

Today, equity research is increasingly relied upon by corporate teams as a high-value source of information. These teams leverage equity research to make strategic business plans, conduct competitive analysis, evaluate mergers and acquisitions, and make product and marketing decisions. For corporations, the value of equity research lies in the detailed coverage of their company, their competitors, and how they are performing related to the marketplace they are within.

What is an Equity Research Report?

An equity research report is a document prepared by an equity research analyst that often provides insight on whether investors should buy, hold, or sell shares of a public company. In an equity research report, an analyst lays out their recommendation, target price, investment thesis, valuation, and risks.

There are multiple forms of equity research, including (but not limited to):

An update report that highlights the latest news, company announcements, earnings reports, Buy Sell Hold ratings, M&A activity, anything that impacts the value of the company.

A comprehensive company report that is compiled when an analyst or firm initiates their coverage of a stock. Initiation reports cover all of the divisions and products of a company in-depth to provide a baseline of what the company is and how it is performing. Initiation reports can be tens to hundreds of pages long, depending on the complexity of a company.

General industry updates that cover a group of similar companies within a sector. Industry-specific reports typically dive into additional factors such as loan growth, interest rates, interest income, net income, and regulatory capital.

A report compiled by research firms either daily or weekly. These reports can often be a great place to get more in-depth insight on commodities and also get market opinions from commodity analysts or traders who write the reports.

A quick 1-2 page report that comments on a news release from a company or other quick information

What is Included in a Typical Equity Research Report?

Research reports don’t need to follow a specific formula. Analysts at different investment banks have some latitude in determining the look and feel of their reports. But more often than not, research reports follow a certain protocol of what investors expect them to look like.

A typical equity research report includes in-depth industry research, management analysis, financial histories, trends, forecasting, valuations, and recommendations for investors. Sometimes called broker research reports or investment research reports, equity research reports are designed to provide a comprehensive snapshot that investors or corporate leaders can leverage to make informed decisions.

Here’s a quick overview of what a standard equity research report covers:

This section covers events, such as quarterly results, guidance, and general company updates.

Upgrades/Downgrades are positive or negative changes in an analyst’s outlook of a particular stock valuation. These updates are usually triggered by qualitative and quantitative analysis that contributes to an increase or decrease in the financial valuation of that security.

Estimates are detailed projections of what a company will earn over the next several years. Valuations of those earnings estimates form price targets. The price target is based on assumptions about the asset’s future supply & demand and fundamentals.

Management Overview and Commentary helps potential investors understand the quality and makeup of a company’s management team. This section can also include a history of leadership within the company and their record with capital allocation, ESG, compensation, incentives, stock ownership. Plus, an overview of the company’s board of directors.

This section covers competitors, industry trends, and a company’s standing among its sector. Industry research includes everything from politics to economics, social trends, technological innovation, and more.

Historical Financial Results typically cover the history of a company’s stock, plus expectations based on the current market and events surrounding it. To determine if a company is at or above market expectations, Analysts must deeply understand the history of a specific industry and find patterns or trends to support their recommendations.

Based on the market analysis, historical financial results, etc., an analyst will run equity valuation models. In some cases, analysts will run more than one valuation model to determine the worth of company stock or asset.

Absolute valuation models : calculates a company’s or asset’s inherent value.

Relative equity valuation models : calculates a company’s or asset’s value relative to another company or asset. Relative valuations base their numbers on price/sales, price/earnings, price/cash flow.

An equity research analyst’s recommendation to buy, hold, or sell. The analyst also will have a target price that tells investors where they expect the stock to be in a year’s time.

What Does an Equity Research Analyst Do?

Equity research analysts exist on both the buy-side and the sell-side of the financial services market. Although these roles differ, both buy-side and sell-side analysts produce reports, projections, and recommendations for specific companies and stocks.

An equity research analyst specializes in a group of companies in a particular industry or country to develop high-level expertise and produce accurate projects and recommendations. Since ER analysts generally focus on a small set of stocks (5-20), they become specialists in those specific companies and industries that they evaluate or follow. These analysts monitor market data and news reports and speak to contacts within the companies/industries they study to update their research daily.

Analysts need to comprehend everything about their ‘coverage’ to give investment endorsements. Equity research analysts must be conversant with the business regulations and regime policies within the country to decide how it will affect the market environment and business in general. The more you understand the industries in detail, the easier it will be for you to decipher market dynamics.

One prevalent aspect of an equity research analyst’s job is building and maintaining valuable relationships with corporate leaders, clients, and peers. Equity research is largely about an analyst’s ability to service clients and provide insightful ideas that positively influence their investing strategy.

EQUITY RESEARCH ANALYSTS:

• Analyze stocks to help portfolio managers make better-informed investment decisions.
• Analyze a stock against market activity to predict a stock’s outlook.
• Develop investment models and provide trading strategies.
• Provide expertise on markets and industries based on their competitive analysis, business analysis, and market research.
• Use data to model and measure the financial risk associated with particular investment decisions.
• Understand the details of various markets to compare a company’s and sector’s stock

Buy-Side vs. Sell-Side Analysts

Although the roles of buy-side and sell-side analysts do overlap in some respects, the purpose of their research differs.

How Do Corporates Currently Access Equity Research?

If you were to Google “equity research reports,” you would not get access to equity research, earnings call transcripts or trade journals. You would, however, discover an unmanageable amount of noise to sift through.

Accessing equity research reports is highly dependent on relationships and entitlements, particularly for corporate teams. Unlike financial firms and investor relations teams, who can access equity research by procuring the right entitlements, corporate teams have a much harder time finding and purchasing high-quality equity research.

If you were to search online for equity research, for example, you would be presented with sub-par options such as:

Some websites allow you to search for research reports on companies or by firms. Some of the reports are free, but you must pay for most of them. Prices range from just $15 to thousands of dollars.

If you want just the bottom-line recommendations from analysts, many sites summarize the data. Nearly all the websites that provide stock quotes also compile analyst recommendations, however, you will only get the big picture and not any of the detailed analysis.

Some independent research providers sell their reports directly to investors. These reports typically include an overview of what a stock’s price could be, plus an analysis of the company’s earnings. These reports often cost less than $100 but can be more.

The majority of equity research is completely unsearchable, which is why AlphaSense’s Wall Street Insights is changing the game for corporations globally. Now, with WSI, corporations can leverage this high-quality research to augment their understanding of specific companies and industries; plus, AlphaSense’s corporate clients can now conduct more meaningful analysis and make more data-driven decisions.

Real-Time Research : Real-Time research is available to eligible users (based on an entitlement) immediately upon publication by the broker. Financial Services users with entitlements are the primary consumers of real-time research, while some Corporate professionals are also eligible. Payment for real-time research is made directly from clients to brokers through trading commissions or hard dollar agreements.

Aftermarket Research : Aftermarket research is a collection of many of the same documents as the real-time collection, but it is available after a zero to fifteen-day delay. Investment bankers, consultants, and corporate users are the primary consumers of Aftermarket research.

What is Wall Street Insights?

Wall Street Insights is the first and only equity research collection purpose-built for the corporate market, providing corporations unprecedented access to a deep pool of equity research reports from thousands of expert analysts.

Through partnerships with Morgan Stanley, Bank of America, Barclays, Bernstein, Bernstein Autonomous, Cowen, Deutsche Bank, Evercore ISI, HSBC, and others, corporate professionals can now access the world’s most revered equity research, indexed and searchable in the AlphaSense platform.

From macro market trends and industry analyses to company deep-dives, the Wall Street Insights content collection provides corporate professionals with a 360-degree view of every market. With the valuable expertise of thousands of analysts on your side, corporate teams can quickly compare insights, validate internal assumptions, and generate new ideas to guide critical business decisions and strategies.

In terms of search and accessibility, Wall Street Insights is the first of its kind. Not only does AlphaSense offer hard-to-find equity research reports, but we also provide a robust and seamless search experience.

What Research Do You Get Access to with WSI?

Get access to the world’s leading equity research with Wall Street Insights. Download the e-book to learn more about equity research from Morgan Stanley, Barclays, Bernstein, Deutsche Bank, and more.

“We are delighted to partner with AlphaSense to expand access to Morgan Stanley’s global research platform,” says Simon Bound, Global Head of Research at Morgan Stanley. We have over 600 publishing analysts covering companies, industries, commodities, and macroeconomic developments across more than 50 countries. Morgan Stanley will bring corporates a unique perspective from our best in class analysts, a global platform, and a collaborative culture that enables us to unravel the most complex market and industry trends.”

How Can Companies Leverage Equity Research?

Discover how the world’s most innovative companies leverage Wall Street Insights to make critical business decisions every day. Download the e-book to read real case studies from a Corporate Development team and a Corporate Strategy team.

“AlphaSense’s corporate users are typically Corporate Strategy, Corporate Development, and Investor Relations professionals. Today, thousands of enterprises rely on equity research to power data-driven decision making. These teams leverage equity research reports to:”

• Create investment ideas
• Monitor peers in real-time (and discover what equity research is being produced about them)
• Model and evaluate companies (for M&A or general benchmarking)
• Dive deep into customers, partners, and prospects
• Get up-to-speed quickly on specific industry trends
• Prepare for earnings season

Ready to explore the world’s leading equity research

Here’s How to Write an Equity Research Report: The Best Guide

October 17, 2016

Equity Research is a rewarding career.

To keep up, you need a strong foundation with the judgment to think critically, act independently, and be relentlessly analytical.

That’s why I wrote this guide — to empower you with the equity research(ER) report writing skills to stay ahead in the equity research career.

There is almost NO guide available that teaches you how to write an equity research report.

From textbooks to online video tutorials, you can check and let me know if you find one.

And, I felt that I should write a detailed and step-by-step guide— a guide that really starts at the beginning to equip already-intelligent analysts with a healthy balance of conceptual and practical advice.

The Advanced Guide to Equity Research Report Writing takes your writing to the next level.

Who Is This Guide for?

I wrote this guide for an audience of equity research analysts , investment banking professionals, industry analysts, market research professionals, business management students, and freelance writers.

Most of all, I want you to walk away from this guide feeling confident about your equity report writing skill.

What Is an Equity Research Report

This chapter explains what exactly an ER report is.

The questions like—Who makes it? Who reads and uses it? What are the different types of equity research reports?—are answered clearly and elaborately.

It briefly talks about the various key contents of an ER report.

And lastly, it explains the need to provide a disclaimer at the end of an ER report.

So before understanding how to write an ER report, let’s try to understand what exactly an equity ER is.

FINRA , the Financial Industry Regulatory Authority, defines an equity research report, in Rule 2711 (a)(8) as,

 “A written or electronic communication that includes an analysis of equity securities of individual companies or industries , and that provides information reasonably sufficient upon which to base an investment decision.

Readers of Equity Research, more so than anything else, identify trends that make investment decisions easier to justify.

In simpler words, equity research is a document written and published by a brokerage house or securities firm for its clients to help them to make better decisions regarding which stocks to choose for profitable investment.

The report should be such that it should convince the client to make a decision.

The report should be crisp; the point of view should be clearly structured and articulated concisely.

In the investment industry, equity reports usually refer to ‘sell-side’ research, or investment research created by brokerage houses.

Such research is circulated to the corporate and retail clients of the brokerage house that publishes it.

Research produced by the ‘buy-side’, which includes mutual funds, pension funds, and portfolio managers, is usually for internal use and is not distributed to outside parties.

a. Different types of equity reports

In the above paragraph, we saw terms such as ‘sell-side’ and ‘buy-side’.

Let’s quickly understand what these terms mean:

There are two main types of equity research reports:

i. Sell-Side reports

Sell-side reports are the most common type of equity research reports in circulation.

They are normally produced by investment banks , typically for their clients to guide their investment decisions.

A sell-side analyst works for a brokerage firm or bank which manages individual clients and makes investment recommendations to them.

Sell-side analysts issue the often-heard recommendations of “buy”, “hold”, “neutral”, or “sell”.

These recommendations help clients make decisions to buy or sell stocks.

This is favourable for the brokerage firm as each time a client takes a decision to trade; the brokerage firm gets a commission on the transactions.

Click here to see some examples of sell-side reports

ii. Buy-Side reports

The ‘buy-side’ reports are internal reports, produced for the bank itself, and are guided by differing perspectives and motivations.

A buy-side analyst generally works for a mutual fund or a pension fund company.

They perform research and make recommendations to the money managers of the fund that hires them.

Buy-side analysts will verify how promising an investment seems and how well it fits with the fund’s investment strategy.

These recommendations are made exclusively for the benefit of the fund that employs them and is not available to anyone outside the fund.

Within the buy/sell group, there are other types of reports like initiating coverage reports, standard reports, Issue reports, Investor notes, and sector reports.

iii. Initiating coverage reports

The initiating coverage reports are conducted on firms that the bank has begun following and are typically more comprehensive in nature.

Initiating coverage reports analyze a company’s historical financial information, order books, efficiency, SWOT, cash-flows, and future earning potential, basis which it estimates the future earnings of the company and its P/E multiples.

Click here to see some examples of initiating coverage reports

iv. Standard reports

After an initiating report is produced standard reports will follow for as long as the brokerage house continues to track the stock.

Stocks that are tracked are typically part of an index like the SENSEX or are amongst the top stocks in an industry as these are the stocks that investors care about and are traded in larger volumes.

v. Issue reports

These reports are issued when generally companies announce earnings each quarter (Quarterly earnings reports).

vi. Investor notes

These reports are published a few times in between for incremental information and news.

For example – investor conference companies hold a big M&A deal or a major new product announcement from a competitor.

These are usually short-run updates and are typically just quantitative in nature.

vii. Sector reports

A sector report is a document that evaluates a given industry and the companies involved in it.

It is often included as part of a business plan and typically seeks to establish how one company can gain an advantage in industry through detailed research on competition, products, and customers.

Click here to download the sector report

b. Contents of an equity research report

Now that we have understood the different types of equity research reports, let’s try to see the contents of an ER report.

An ER report should not be more than 10 to 15 pages long and should be very crisp and concise.

It should give the reader a clear understanding of the opinion of the analyst writing the report.

An ER report typically has the following contents:

1. Analyst opinion and summary

2. Key highlights of the company

3. A snapshot of the industry

4. Financial ratio analysis

5. Financial Modeling and Valuation analysis

6. Risk factors

7. Disclosure and rationale of rating

Usually, most of the equity research reports have this information; however, there is no hard and fast rule in which an ER report should be written.

We will study in detail (with examples) how to write each of these segments of an ER report in the forthcoming chapters.

c. Importance of Disclaimers in Analyst Reports

As every ER report is an investment document, and investors use it to make decisions for buying or selling securities based on it, it is important for the report to have certain disclaimers to show un-biases of the analyst writing the report.

Some typical disclaimers are as follows:

• Every ER report entirely reflects views and personal opinions of the analyst as on the date of publication
• The equity research analyst does not have an interest in the shares of the company
• Compensation of the analyst is not linked directly to any specific research recommendations contained in the report

Financial Analysts or equity research analysts working in brokerage firms or sell-side analysts write equity research reports.

Equity research report writing process

Equity Research Report writing

After completing the fundamental analysis, financial statement analysis, ratio analysis, and valuation, the last part of the equity research process is writing equity research reports.

As an equity research analyst, you need to analyze the industry and the company first and then write the stock research report.

This step is paramount in your equity research analysis career .

This is important to write the equity research reports in such a way that your clients understand every word of it.

It’s also important to include relevant analysis that you’ve done in the report.

How to write a report

Let’s see each step of writing an equity research report in detail.

1. Company fundamental analysis

a) Macroeconomic Analysis

b) Checking public information of the company

c) Discussion/ interviews with company management

d) Prepare a 5-year cash flow model and earnings forecast model

e) Review your operational and financial assumptions

f) Assess management and competitive environment, buyers, suppliers, substitutes, porter 5-forces model that tells you the competitive advantage of the company.

2. Company valuation analysis

1. Use intrinsic valuation—Discounted Cash Flow(DCF) method

2. Relative valuation

3. sum-of-the-parts valuation method, wherever required.

Pointers for writing equity research reports

I’ve created a list of pointers purely based on my experience and observations and a bit of research about dos and don’ts while writing an equity research report.

1. A clear view of the company

Before writing the report, have a clear view of the company in terms of—Investment rationale, risk assessment, key growth drivers, cost drivers, and revenue drivers.

2. Recommendation/Rating

Clearly write the company’s name at the top of the report and mention your recommendation—buy, sell, hold.

You can also use the words—outperform, underperform, neutral or accumulate based on your valuation.

Have an image of an equity research report in your mind, and so you won’t miss these details.

Usually, there are templates available in your company and you need to write the report using these templates.

3. Target price

You need to mention the target price based on your valuation along with the recommendation.

4. Investment rationale

Write clearly your investment rationale. Why do you think the share price will go up/down?

5. Share price chart

Include a price chart of the stock that will show the last 52-weeks’ share price movement.

6.Business model

Mention the analysis of the company’s business model and how will it perform in the next 2-3 years.

7. Key ratio analysis

Include important ratio analysis of the company and 52-week high-low share price on a stock exchange.

Include market capitalization, Enterprise Value(EV), Earnings Before Interest Tax and Depreciation (EBITDA), EV/EBITDA, and dividend yield (%)

8. Product profile and segments

Analyze the company’s product profile, its various segments, and brands. Include current sales and forecasted revenue figures, cost, market size, company’s market share, competition, the company’s performance in domestic and other markets.

9. Economy-Industry-Company (E-I-C) Analysis

Cover the company’s fundamental analysis with supportive data.

10. Intrinsic and relative valuation

Perform DCF analysis and relative valuation. Relative valuation should be done with the company’s peers on the basis of Price-Earnings ratio (P/E), Price to Book ratio (P/B), Price to Sales (P/S), Return on Equity (ROE) and Return on Capital Employed (ROCE).

11. Reasoning for recommendation

Write proper reasoning for your recommendation. For example—Why buy the stock or why not to buy the stock. So, your reasoning has to be strong.

12. Unlock the value

Write what can unlock/increase/reduce the value of the company .

13. Legal matters

If the company is battling any case, write what could be its effects on the stock price.

14. Common industry points

While writing industry reports, write the points which are common for all players in the industry, for example, regulatory limitation, excise duty, oil prices, etc.

15. Covering all the areas in an equity research report

While writing the equity research report, assume that the reader is new to the company and he doesn’t have any idea about its business.

So, your report should include precise information about—product, financials, management, market, future plans of the company, growth estimates, and the risk factors of the company.

In short, as an equity research analyst, your equity analysis report writing process should be structured and you should follow the dos and don’ts mentioned in this post.

Sample equity research reports (PDFs):

The Walt Disney Company

If you have any queries, Speak Your Mind.

Key Takeaways

• Equity research report writing is a skill . You need to build this skill to go to the next level in your career . Top-notch careers in finance–equity research, investment banking , asset management, financial research, Knowledge Process Outsourcing (KPO) units value this skill in high regard.
• There are different types of research reports–sell-side, buy-side, initiating coverage, standard, issue, investor notes, and sector reports. As an analyst, you should know all these reports.
• Contents of an equity research report include Analyst opinion and summary, Key highlights of the company,  A snapshot of the industry, Financial and ratio analysis, Valuation analysis, Risk factors, and Disclosure and rationale of rating. I’m going to cover all these sections in detail with examples in the coming chapters.

Now You Try It

I hope you can see the potential of equity research report writing skills for your career.

Yes, it takes hard work to create something great.

But with this skill, you already know ahead of time that your hard work is going to pay off.

I want you to give the skill a try and let me know how it works for you.

If you have a question or thought, leave a comment below and I’ll get right to it.

• Download BIWS Course sample videos here .
• Read Students’ Testimonials here .

Avadhut is the Founder of FinanceWalk. He enjoys writing on Finance Careers topics. Check our Financial Modeling Courses . Contact us for  Career Coaching based on Your Inner GPS.

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All About Equity Research [The ONLY Guide You’ll Need in 2024]

Equity research is a key pillar in the world of finance that bridges the gap between companies, investors, and the market . In this guide, we will delve deep into the world of equity research, exploring its purpose, the process, the roles involved, and the skills required to succeed in this field.

We’ll also discuss the types of equity research, dissect the intricacies of equity research reports, and shed light on the exciting job opportunities this sector offers. Furthermore, we will touch upon the evolving trends in equity research and how they’re shaping the industry’s future.

Let’s get started-

What Is Equity Research?

In the world of finance, ‘equity’ refers to the ownership of assets after all debts associated with those assets are paid off. In simpler terms, if you were to sell all of your company’s assets and pay off its debts, the leftover money would represent your company’s equity. Hence, equity research is an in-depth analysis of a company’s total equity or value.

But equity research isn’t just a mere calculation of assets and liabilities. It’s a rigorous, methodical examination of all the aspects that contribute to a company’s financial performance, and thus, its equity. It is akin to a detective’s investigation, digging through layers of financial statements, market trends, sector overviews, and macroeconomic factors to arrive at a comprehensive understanding of a company’s financial standing and future prospects.

Understanding Equity Research With a Simple Example

Let’s illustrate this with an example. Suppose an equity research analyst is studying a pharmaceutical company . They won’t only look at the balance sheets or profit and loss statements. They’ll consider factors such as the company’s research and development efforts, the potential market for new drugs, any pending patents, the status of regulatory approvals, and even the broader trends in the healthcare industry.

They might investigate how the company performed during different economic conditions, how well its product pipeline compares to competitors, and how regulatory changes could impact future earnings.

The analyst will also look at macroeconomic indicators. For instance, if a new law threatens to increase the cost of a raw material vital to the company’s main product, that could impact the company’s future profitability, and the analyst would need to factor this into their analysis.

At the end of this investigation, the equity research analyst forms an estimation of the company’s intrinsic value, which they then compare to its current market value . If the intrinsic value is significantly higher than the market value, the analyst might recommend the stock as a good buy, as it’s likely undervalued . On the other hand, if the market value is much higher than the intrinsic value, the stock might be overpriced , and the analyst might recommend investors to sell or avoid it.

Equity research, in essence, is this deep dive into the world of a company’s financials , providing a guide to investors, helping them navigate through their investment journey. It’s the compass that points towards profitable investment decisions.

Roles and Responsibilities of an Equity Research Analyst

An Equity Research Analyst acts as a conduit between investors and the ever-dynamic financial markets, providing them with information and insights necessary to make sound investment decisions. Let’s see how their day looks like –

Deep-Dive Research

Their day-to-day responsibilities start with conducting extensive research i nto specific companies or sectors. They meticulously scrutinize financial reports, balance sheets, cash flow statements, and earnings releases. However, their research isn’t limited to mere numbers. They also keep tabs on industry trends, regulatory changes, and macroeconomic factors that could impact the companies they are following.

Example – An analyst is covering technology companies, they need to be abreast of developments like privacy legislation, advancements in artificial intelligence, or shifts in consumer behavior towards tech products. This requires constant learning and staying updated with news and trends in the sector.

Financial Modelling and Valuation

Equity Research Analysts are also adept at creating complex financial models . They use these models to project future earnings , based on various potential scenarios. Based on these projections, they calculate the intrinsic value of a company’s shares.

Example – Let’s say there’s an auto company that’s planning to launch a new electric car model. An Equity Research Analyst covering this company would build a financial model to estimate additional revenues from this new model, the costs associated with its production, the potential impact on the company’s market share, and so on. They would then use these estimates to calculate what this could mean for the company’s future profitability , and how it could impact the company’s share price.

Also Read: All About Financial Modeling [The ONLY Guide You’ll Need in 2024]

Writing Equity Research Reports

One of the key deliverables of an Equity Research Analyst is the Equity Research Report. These reports encapsulate the findings of their research and analysis in a format that’s digestible for investors. The report typically includes

• An overview of the company
• A summary of recent developments
• Detailed financial analysis
• Future projections, and
• Most importantly, an investment recommendation (buy, hold, or sell)

The equity research reports have a broad audience – institutional investors, retail investors, fund managers, and sometimes, the companies themselves. Given the diverse readership, the reports need to be accurate, unbiased, and clear. A well-written report can significantly influence investment decisions, underscoring the responsibility on the analyst’s shoulders.

Communication and Presentation

Finally, an Equity Research Analyst often has to present their findings to clients, fund managers, or within their own organizations. This could be through conference calls, presentations, or even TV interviews. Hence, strong communication skills and the ability to explain complex financial concepts in a simple way are essential traits for an Equity Research Analyst.

The Process of Equity Research

The process of equity research is like peeling back the layers of an onion to reveal the core truth about a company’s financial health and potential. It involves multiple steps, each equally important in creating a well-rounded view of the company.

Step 1: Selection of Companies

The first step in equity research is the selection of companies. Analysts often specialize in specific sectors or industries , such as technology, healthcare, or energy. The choice of companies to analyze within those sectors depends on several factors, including market capitalization, relevance in the industry, or particular events like mergers or IPOs.

Step 2: Industry Analysis

After choosing the companies, analysts start with a broad industry analysis . They look at the industry size, growth rate, major competitors, regulatory environment, and key trends. This macro view provides context for the company’s operations and potential growth.

Step 3: Company Analysis

Once they’ve understood the industry context, analysts move onto detailed company analysis. This involves a deep dive into the company’s financial statements, including balance sheets, income statements, and cash flow statements. They also examine the company’s business model, products or services, competitive positioning, management quality, and corporate governance practices.

Step 4: Financial Modelling and Projections

After developing an in-depth understanding of the company, analysts use this information to build detailed financial models. These models involve projections of the company’s future revenues, expenses, and earnings, often under different scenarios. For example, they might project how the company’s earnings could be affected under different economic conditions or if a new product line succeeds or fails.

Step 5: Valuation

The next step is the valuation, where analysts use techniques such as Discounted Cash Flow (DCF) analysis, Price/Earnings (P/E) ratio, or Comparables analysis to estimate the intrinsic value of the company’s shares . This value is then compared with the current market price to determine whether the company’s shares are undervalued or overvalued.

Step 6: Report Writing and Recommendation

Finally, analysts compile their research findings, financial model outputs, and valuation results into a comprehensive equity research report . The report also includes a recommendation, typically a ‘buy’, ‘hold’, or ‘sell’ for the company’s stock based on the analyst’s analysis.

It’s important to note that equity research is a continuous process . Companies release financial information quarterly, industry trends evolve, and macroeconomic conditions change. Therefore, analysts regularly update their reports to reflect the most recent data and insights.

Key Aspects of Equity Research Reports

An Equity Research Report is a comprehensive document that encapsulates an analyst’s view of a company, sector, or industry . These reports are essential tools that investors use to understand and navigate the financial markets. Here are the key aspects of an equity research report:

Executive Summary

Every report begins with an executive summary that provides a brief overview of the analyst’s findings and recommendations. This part is designed to provide a quick snapshot of the key takeaways from the report.

Company Overview

This section provides a detailed description of the company , including its history, management, product or service offerings, and business model. It also includes an overview of the company’s key strategies and competitive advantages. This information helps readers understand the company’s operations and its position within its industry.

Industry Overview

The industry overview offers an analysis of the broader sector or industry in which the company operates. It covers aspects such as industry size, growth rates, key trends, major competitors, and regulatory environment . This context is crucial in understanding the company’s potential for growth and the challenges it might face.

Financial Analysis

In this part of the report, the analyst presents their detailed analysis of the company’s financials. This usually includes examination of the i ncome statement, balance sheet, and cash flow statement. The analyst may also discuss financial ratios, growth rates, profitability metrics, and other key financial indicators. This section provides insights into the company’s financial health and performance.

Financial Projections and Valuation

The heart of the equity research report is the financial projections and valuation section. Here, the analyst lays out their forecasts for the company’s future earnings and financial performance. They also present their valuation of the company’s stock, typically arrived at using financial modelling techniques like Discounted Cash Flow (DCF), Price/Earnings (P/E) ratio, or Comparables analysis.

Investment Thesis and Recommendations

In the final section, the analyst presents their investment thesis – their argument for why an investor should or should not invest in the company’s stock. They also provide a clear investment recommendation, typically a ‘buy’, ‘hold’, or ‘sell’ rating. This section is the culmination of all the analyst’s research and analysis.

Types of Equity Research

Equity research is carried out by different types of institutions for various purposes . Understanding the differences among them can help in comprehending the perspectives and potential biases in the research. Here are the key types of equity research:

Sell-Side Equity Research

Sell-side analysts work for brokerage firms and investment banks. Their research is primarily aimed at selling securities, providing investment recommendations, and facilitating transactions , which helps their companies earn brokerage and transaction fees. Sell-side research is generally freely available, and the firms distribute it widely to attract business from institutional and retail investors.

Buy-Side Equity Research

Buy-side analysts work for institutional investors such as mutual funds, hedge funds, pension funds, and insurance companies. They conduct research to assist the fund’s managers in making investment decisions for the fund’s portfolio. Their research is typically proprietary and is used solely for the benefit of the fund that employs them.

Independent Equity Research

Independent equity research firms are third-party entities that aren’t directly involved in trading securities. They sell their research to hedge funds, asset managers, and sometimes individual investors . Since these firms don’t have a trading department and aren’t seeking investment banking business, their research is perceived as unbiased. They have gained popularity over the past decade due to their perceived objectivity.

Internal Equity Research

Large corporations often have their internal equity research teams. These analysts perform research on competitors, suppliers, and customers to assist in strategic decision-making. This research is generally not available to the public as it is used for internal corporate strategy and planning purposes.

Each type of equity research has its strengths and weaknesses , and they all play essential roles in the financial ecosystem. Understanding their differences and potential biases can help investors and decision-makers use this research more effectively.

Skills Required for a Career in Equity Research

Equity research is a challenging and intellectually demanding field that requires a combination of hard and soft skills. If you’re considering a career in equity research, here are the key skills you’ll need to succeed:

Financial Literacy

A fundamental understanding of financial principles is the bedrock of equity research. This includes knowledge of financial accounting, corporate finance, economics, and statistics . Analysts need to be comfortable reading and interpreting financial statements, calculating financial ratios, and understanding economic indicators.

Analytical Skills

Equity research involves extensive data analysis. Analysts need to sift through large volumes of data, spot trends, interpret complex information , and draw meaningful conclusions. Strong analytical skills are crucial to understand the past performance of a company and make accurate forecasts about its future.

Financial Modelling

Financial modelling is an essential tool in an equity researcher’s arsenal. Analysts use financial models to forecast a company’s future revenues and earnings and estimate the intrinsic value of its shares. Proficiency in Excel and familiarity with valuation techniques such as discounted cash flow (DCF) and comparable company analysis is a must.

Attention to Detail

The devil is often in the details when it comes to equity research. Analysts need to pay close attention to the footnotes in financial statements, the nuances in a CEO’s comments during an earnings call, or the implications of a regulatory change. A small detail can sometimes have a significant impact on a company’s valuation.

Communication Skills

Analysts need to communicate their findings effectively. This includes writing clear, concise research reports that can be understood by people without a financial background. It also involves presenting and defending their views to clients, colleagues, and sometimes, the media. Strong written and verbal communication skills are vital.

Curiosity and Continuous Learning

Equity research analysts need to stay on top of industry trends, economic news, and changes in financial regulations. This requires a natural curiosity and a commitment to continuous learning. An analyst who stops learning risks falling behind in the fast-paced world of finance.

Job Opportunities in Equity Research

Equity research provides a host of job opportunities in a range of firms including investment banks, asset management companies, research firms etc. Let’s understand these roles, their typical responsibilities, average salaries in India, and potential employers:

Equity Research Analyst

As an Equity Research Analyst, you’ll delve deep into company financials, industry trends, and macroeconomic factors to provide investment recommendations. You may focus on a specific sector or cover a broad range of industries. This role involves financial modelling, report writing, and communicating with clients and company representatives.

Average Salary in India : ₹ 7-10 Lakhs per annum Employers : Major employers include JP Morgan, Goldman Sachs, Morgan Stanley, Credit Suisse, Kotak Securities.

Associate Analyst

Those just starting in equity research often begin as Associate Analysts. Working closely with senior analysts, Associates help in collecting data, building financial models, and drafting research reports. It’s a role that provides a solid foundation in the fundamentals of equity research.

Average Salary in India : ₹ 4-6 Lakhs per annum Employers : Firms like Ernst & Young, KPMG, Deloitte, and PwC.

Senior Analyst/Research Director

With experience, an Analyst or Associate can move up to become a Senior Analyst or Research Director. These roles involve more strategic oversight, including deciding which companies or sectors to cover, mentoring junior analysts, and representing the firm to clients, the media, and the public.

Average Salary in India : ₹ 12-20 Lakhs per annum Employers : Multinational banks and brokerage firms like Citigroup, Barclays, ICICI Securities.

Portfolio Manager

Some equity research analysts transition into portfolio management roles over time. As a Portfolio Manager, you would use the insights from equity research to make investment decisions for a fund or portfolio. This role requires a deep understanding of financial markets, risk management, and asset allocation strategies.

Average Salary in India : ₹ 15-25 Lakhs per annum Employers : Asset management companies like HDFC Asset Management, ICICI Prudential, Reliance Nippon Life Asset Management.

Equity Strategist

Equity Strategists work with a macro view, examining factors like economic indicators, industry trends, and market data to provide investment strategies and identify attractive sectors or themes in the market. While less company-specific than an analyst role, strategists still utilize many of the research and analytical skills developed in equity research.

Average Salary in India : ₹ 10-18 Lakhs per annum Employers : Major investment banks and financial services firms like Deutsche Bank, HSBC, UBS.

Investor Relations Role

Equity research analysts can also move into investor relations roles within companies. These professionals communicate with shareholders, analysts, and the broader financial community. Understanding the perspective of equity analysts is valuable in this role since you’ll be communicating key financial and strategic information about the company to the investment community.

Average Salary in India : ₹ 9-15 Lakhs per annum Employers : Large corporations across industries like Tata Group, Reliance Industries, Infosys, Wipro.

Sales & Trading

Some equity research professionals transition into roles in sales & trading. In this capacity, they use their deep knowledge of industries and companies to advise clients on investment strategies, facilitate transactions, and connect buyers and sellers in the financial market.

Average Salary in India : ₹ 8-16 Lakhs per annum Employers : Banks and brokerage firms such as Axis Bank, HDFC Bank, Edelweiss, Sharekhan.

Trends and Future of Equity Research

Equity research, like all facets of finance, is continually evolving in response to changing regulations, technologies, and investor behaviours. Here are some of the current trends and potential future developments in the field:

Digitization and Automation

The digitization of financial information and the development of advanced data analytics tools are transforming the way analysts conduct research. Automated tools are increasingly being used to collect and process data, allowing analysts to focus more on interpreting the data and generating insights.

For example , artificial intelligence (AI) and machine learning (ML) tools are now used to analyze financial statements, track sentiment in news articles and social media, and even to predict future stock price movements.

Increased Regulatory Oversight

In recent years, regulators around the world have been placing increased scrutiny on equity research to promote transparency and prevent conflicts of interest.

For example , the European Union’s MiFID II regulations now require investment firms to separate the costs of research from trading fees. This has led to more demand for independent research and is forcing sell-side firms to demonstrate the value of their research more explicitly.

Demand for ESG Analysis

There’s a growing trend among investors to consider Environmental, Social, and Governance (ESG) factors in their investment decisions. This is leading to increased demand for equity research that includes analysis of companies’ ESG performance. Analysts are now required to assess factors such as a company’s carbon footprint, its labor practices, and its board diversity in addition to its financial performance.

Crowdsourced Equity Research

Crowdsourced equity research platforms, where independent analysts and investors share their research and opinions, are gaining popularity. These platforms offer a wider range of views and analyses than traditional equity research sources. However, they also pose new challenges in terms of verifying the credibility of the information.

Emergence of Alternative Data

Equity researchers are increasingly using alternative data – information derived from non-traditional sources like s ocial media sentiment, satellite imagery, or website traffic data – to gain additional insights into a company’s performance. These data sources can provide real-time indicators that can complement traditional financial data and provide an edge to the analysts.

Equity research serves as a vital link between companies, investors, and the financial markets . It involves detailed analysis of financial data, sector trends, and macroeconomic factors to formulate clear, actionable investment recommendations.

With its varied roles – from Equity Research Analysts to Portfolio Managers, and from Equity Strategists to Investor Relations Roles – this field offers numerous career paths, each with its own unique blend of challenges and rewards.

Whether you’re a finance enthusiast exploring career paths or an investor seeking insights into your investment choices, understanding the nuances of equity research is highly beneficial. So take the leap, dive deep, and explore the rewarding world of equity research!

Frequently Asked Questions

Equity research analysts examine financial data, conduct analyses, build financial models, and write research reports to make investment recommendations.

Skills include strong analytical abilities, understanding of financial markets, proficiency in financial modeling, and excellent communication skills.

CA Yash Jain

Bain & Co. 5000+ Students Trained in the field of Investment Banking, FRM & CFA

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How to do Equity Research? Process, Valuation, Indicators & more

This article is inclined towards Equity Research which is a very important aspect of fundamental analysis.

We will go though the process of Equity Research, understanding financials, Valuation, Indicators & more.

What is Equity Research?

In simple words, equity research can be described as the study and analysis of different companies’ stocks for investment purposes.

In a broader sense, it also includes research about commodities and bonds. The primary purpose of equity research is to decide whether to buy, hold, or sell a particular investment.

An equity research analyst’s main job is to study the company, entity, or the entire sector, to derive meaningful insights.

The equity researcher uses both fundamental and technical analysis to understand the present position and future growth prospects of any company.

The information published by these analysts is used by private equity firms, retail investors, and investment banks to support their decision making.

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How to do Equity Research as a retail investor?

The professional equity researchers have access to a whole ocean of data and techniques for analyzing a company.

This is not the case with retail investors who have limited means. But, in the era of the internet, this problem becomes a little smaller.

Websites like money control allow investors to find all relevant data related to any company they wish to invest in.

We will discuss the stages involved in equity research concerning retail investors in the sections below:

Learn everything about Fundamental Analysis Now!

1st Step in Equity Research – Know about the Company

The first stage in the process of equity research is to understand the business.

This includes answering all the what, how, why, who questions related to the company. From a long term perspective, business understanding is a must.

If you are still wondering why you should indulge in this tiresome process of developing an understanding of the business and not just jumping into fundamental analysis, then the answer is simple.

Unless you understand the company you are investing in, you will not find the conviction to stay invested in that company.

The people who directly jump to the stock price analysis are the first to disinvest because of the market noises.

However, the ones who know the company, understand their long term perspectives ignore the bearish phase easily.

The smart investors are the ones who buy in the bear market, not sell. This is because they know the business and wish to have a stake in it.

And, what will be better time to buy that stake than when the prices are falling?

Now the question arises, how do you develop a business understanding?

Make a Checklist on Company

Below is a checklist of the things you should know about a company before investing in it:

• What the company does?
• Information about the promoters of the company
• Knowledge about the products and services offered by the company
• Where are the offices/manufacturing plants located?
• Is the plant being fully utilized?
• Information about the raw material required to make the company’s key offerings. This has to be done in order to understand the dependency on external sources.
• Knowledge about the clientele the company has.
• Details about the competitors in the market. This is very important to compare the performance of the selected company with others in the same industry.
• Knowing Industry Average – By knowing about the competitors, you can quickly evaluate how the company is performing compared to the industry’s average. This also gives information about the industry’s nature and whether the company is operating in a monopoly or an imperfect competition. The higher the competition in the market, the greater is the margins and higher is the sales efforts required to tap the end customer.
• Information about the significant shareholders of the company. It is essential to know about this because shareholders have decision-making abilities. Also, if good investors have their holding in the said company, then it becomes a trusting factor to invest in that particular company.

Also, Consider these points in your Checklist for Company Research

• Expansion and diversification plans of the company. This is an important consideration because this tells how ambitious the company is. The more innovative and creative the company is, the higher are the chances of growth in the long run.
• Uniqueness and innovation of the company. If the company you choose to invest in doesn’t offer anything unique to its customers, then there is a very high chance that the customers will switch to a cheaper alternative as and when it comes. The company you choose should have uniqueness about itself. Just, for example, Apple. There are so many mobile phone brands coming and going in the market, but Apple has always been a customer favorite brand!
• The external environment in which the company operates.
• Government and legal regulations binding on the company.

This is a small checklist of the things you need to look for before investing in a company. No good investor would want to risk their capital into something they don’t trust.

It is essential to understand that you are not just investing your resources for present development. Instead, you are investing your time and future into that company.

The checklist is just to get your thought process going. In case you find any red flags during this stage of your equity research, you should stop it right there and then! If you do not understand a business properly, you do not want to invest in it. This is a basic rule!

The technical will keep on fluctuating and changing, but the business’s fundamental understanding is what stays forever.

If, as an investor, you are not sure about the fundamentals, do not proceed further with that company. There are tonnes of better opportunities where you can invest your resources.

Equity Research 2nd Step – Understanding the Financials

The next stage in the process of equity research is looking at the company’s financial statements and understanding financial performance.

There are several indicators of financial performance which need to be understood. Some of them are explained below:

Profit and Loss Statement Indicators

Revenue Growth: Revenue is probably the first point of consideration while thinking about investing in any company.

A good company shows signs of the year on year growth in revenue. A steady increase is better than oscillating between growth and decline.

An investor should look for companies that have shown a steady uptrend in revenue figures every year.

Stable growing revenue also indicates the ability of a company to overcome the impacts of business cycles.

PAT growth rate: PAT is an indicator that holds great value in equity research. A steady growing PAT reflects the high efficiency of the company.

If industries are able to survive cyclical shifts and present stable flat PAT growth figures, they are good options for investing.

EPS: Earnings per Share are a profitability measure. If a company shows a similar growth rate for PAT and EPS, it indicates that it does not dilute the earnings by issuing new equity shares.

This is good news for existing shareholders. A growing EPS is also an indication of good management in control. Thus an increasing EPS is a green flag for investing.

Gross Profits: Gross profits are calculated using the following formula:

Gross profit= Net Sales – Cost of goods sold

Here, net sales = Sales – Sales returns

Cost of goods sold = The entire cost involved in making of the finished goods. This includes the cost of raw material, work in progress, wages, fuel, etc.

In order to find if the company is worth investing in or not, gross profit margins (GPM) are used.

Gross profit margins are calculated as,

GPM = (Gross profit/ Net Sales)*100

For an investment to be successful, a GPM of 20% is considered good.

Balance Sheet Indicators:

Debt: Higher the debt, higher will be the financial leverage. Hence, a company with high debt in the balance sheet comes with a higher risk.

It also means that the company has high financial costs. This would lower the dividend payments and overall profits of the company.

If you see increased growth in business, you should definitely check the debt in the balance sheet.

Development on the cost of financial risk is not a prudent decision. A business needs to manage its debts efficiently.

Inventory: This factor comes into consideration, usually for manufacturing concerns. If you are looking to invest in a manufacturing company, you need to check their inventory management.

High inventory days lead to a high operating cost. It also indicates inefficiency on the part of the administration.

An increasing inventory, with a growing PAT, is a sign of the overall growth of the company.

Bills receivables: The bills receivables are studied in relation to the overall sales figures. Higher receivables indicate credit sales.

It is not considered a good sign while looking from the investor’s perspective. This is because the reason for high receivables can be pushed sales by the salesforce to meet targets.

There is also an increased risk of bad debts. This figure can be considered a big red flag if it’s a significant portion of the sales figure.

Other Critical Indicators include:

Return on Equity: RoE can be calculated as,

Return on equity= (Net profit/ Shareholders’ equity)*100

RoE measures the returns earned by a shareholder for every unit of capital they invest in the business. It helps an investor understand how efficient a company is in generating wealth for its shareholders.

This is undoubtedly an important consideration while doing equity research. Higher the RoE, the better the investment is.

Cash flow from operations: Just by looking at the cash flow statement, one can analyze how profitable a company is in terms of its operating efficiency.

In order to be a green signal for investment, the company must generate enough cash flows to cover its operating expenses.

A company that doesn’t have a positive cash flow from operations should not be considered for investing. The business which manages to keep a stable figure in this category is safe investment.

3rs Step in Equity Research : Valuation of Stock Price

The third and final step in the process of equity research is finding the company’s intrinsic value estimation.

Stock valuation becomes necessary to understand whether the company’s stock price is overvalued or undervalued, or fair priced.

A smart investor would never want to buy a stock that is worth 1/10th of its market price. The best investment is made when the stocks are trading below their intrinsic value.

Now the next question that arises is how to calculate intrinsic value? The intrinsic value of a company can be best calculated using the discounted cash flow method.

DCF analysis is one of the most commonly used techniques to understand whether a company is worth investing in or not.

How to do a Discounted cash flow analysis?

By following the below stated steps in the same order, one can quickly arrive at any stock’s intrinsic value:

(For understanding, here we are calculating the value after ten years.)

• Calculate the average of the last three years’ FCF of the company.
• Multiply the calculated value of Future cash flows with the expected growth rate. This gives you the future value of FCF.
• The net present value of this future cash flow is calculated by dividing it by the discounting rate.
• Repeat this process for all the ten years to arrive at the present values of all the future cash flows.
• Add these to arrive at the Net present value of the FCF for all ten years.
• Now calculate the terminal value. This is done by using the above-given formula.
• Add the NPV of 10 years FCF to the terminal value. This gives you the discounted market capitalization amount.
• Now divide the market capitalization amount with the company’s total outstanding shares to arrive at the fair value of the stock.

4th Step in Equity Research – Intrinsic Value Band

DCF valuation is one of the most popular valuation techniques. However it comes with its own setbacks.

DCF valuation is done based on certain assumptions. Even small changes in these assumptions can lead to drastic changes in the intrinsic value derived.

Hence, it is advisable to make realistic assumptions based on some historic data and not just media clatter. The smarter way to find the intrinsic value is to create an intrinsic value band.

This means creating an upper limit and lower limit as a fair value, instead of just one solid figure.

The intrinsic value band can be calculated by adding and subtracting a certain error percentage. For example, if you assume a change of 10% in your calculations, then

Upper band= Intrinsic value*(1+0.1)

Lower band= Intrinsic value*(1-0.1)

So, now, the stock’s fair price would be anything between the upper and lower band.

This method of establishing an intrinsic value band helps reduce the errors of modelling associated with the DCF valuation.

Buying decision based on intrinsic value:

Now, after calculating the intrinsic value of the stock, it is time to compare it with the market value to arrive at a buying decision:

• If the intrinsic value is lower than the market value, then the stock is considered overvalued. Hence, investing in it would be a bad idea. This is the level where the investors should either decide to book profits and exit or hold on to their investment for a longer time. Entering the market at this price would undoubtedly be no good idea.
• If the stock’s market value is lesser than the intrinsic value band, then the stock is undervalued. This is the right time to invest.
• If the stock’s market value falls within the intrinsic value band range, then it is not advisable to go for a fresh buy. The investor can hold their existing positions.

Hence, it is advisable to buy a stock when it is undervalued compared to its intrinsic value.

Stages in Equity Research

In the first stage, the investor builds a basic understanding of the business the company is into. All the who, how, when, what, etc. questions about the company are answered at this stage.

It is here when the investor first tries to understand the industry, competition, and the overall management of the company he is looking to invest in.

If there is any red flag in this stage, then there is no point going further in the analysis. If the company looks like a good buy based on its necessary information, then in the second stage, you should look into the company’s financials.

The annual report and financial statements need to be studied thoroughly. All the critical business metrics like sales, profitability, and operational efficiency, need to be ensured.

After the company has cleared the first two stages, you can go ahead with the valuation process. The DCF valuation model is used to arrive at the fair value of the stock.

If the stock lies below the intrinsic value band created, then the investor should make the buying decision for the same.

In order to be a value investor, it is essential to go through all these three stages of equity research thoroughly.

Intelligent investors do not put their money into any company randomly. They analyze, understand the company first, and lend their resources to it later!

Wealth is created by investing in long term goals of the company. And the best time to invest is when the stocks of the company are undervalued.

Equity Research: Conclusion

Equity Research is an integral part of Fundamental Analysis. Although, it is a tedious task, but it will surely yield returns in the future.

There is no point in investing in a company that you do not know everything about. By investing in a company, you make your resources a part of that company.

Most Read Articles

The 6-8 Tactics for Being a Successful Equity Research Analyst

At the end of a typical work day, do you feel as though you achieved most of what you set out to do that morning?  Are you regularly being acknowledged, or even rewarded, for doing a great job?  If you answered “yes” to these questions, read no further.

But if you’re like the majority of equity research analysts I meet, they’re spending 50-70 hours at work each week, yet are not seeing an improvement in their stock picking performance or, for the sell-side, are not gaining more client votes.

One of the quickest ways to resolve this common challenge is to follow these 3 steps:

• Step 1: Set two professional goals
• Step 2: Utilize 6-8 tactics to achieve those goals
• Step 3: Once a week, review one week back and one forward to see if your day-to-day activities are perfectly aligned with steps #1 and #2 above

The best paid analysts ensure all of their day-to-day activities are supporting these 6-8 tactics

Let me take you through an example of how these three steps almost always guarantee success.  Let’s first start with Step #1 above.  Having coached hundreds of equity research analysts on time management, I’ve concluded there are only two primary goals:

• Generate alpha (for your firm or clients)
• Get recognition for your stock insights or picks (from your boss or clients)

Now that we have Step 1 out of the way, moving onto Step 2 – there are 6 to 8 tactics for achieving these goals:

• Distill macro, industry and company information to identify the most important critical factors for your assigned stocks (see this post for the “how to”)
• Build/contact network of informed/accurate information sources to identify/validate your out-of-consensus views for your critical factors (see this post for the “how to”). It’s worth mentioning that calling a company’s IR contact or simply accepting management’s guidance does not fulfill this tactic.
• Generate a financial forecast(s) more accurate than consensus by using unique insights not held by consensus
• Apply the most appropriate valuation method(s) and multiple(s) to create a price target(s) more accurate than consensus (see this post for the “how to”)
• Ensure you’re getting into or out of a stock at the ideal time (not early or late)
• Effectively communicate your stock recommendations, including unique insights and catalysts

Sell-side analysts have these two additional tactics:

• Create research and events valued by clients on topics not being discussed by others in the financial market or media
• Identify and build relationships with new clients likely to provide profitable contribution

The chart below contains the responses from 50 buy-side and sell-side analysts I surveyed on this topic, ranking the eight tactics’ importance in helping the analysts achieve their goals.  The results are sorted from “most important” to “least important” based on their responses.  It’s interesting to see the highest-rated tactics are from the sell-side for supporting their client facing goals:

I share these results:

• To show not all tactics are considered equally important
• To question aloud, could part of the mass exodus from actively-managed funds be due in part to analysts placing a relatively low priority on tactics that pertain to stock picking (the three lowest-ranked tactics above)?

Getting back to the original goal of this post, the toughest part of making the most of your professional time is ensuring all of your day-to-day activities support the 6-8 tactics above, and in the right weighting.

I’ll use the Jenga game to illustrate this point, which starts with 3 blocks on 18 levels, for a total of 54 blocks.  Imagine each block represents 10 minutes of your day (equivalent to a 9 hour work day).  How many would you remove for activities that don’t directly support the 6-8 tactics above?  (And for this illustration, we’re not going to stack the extra blocks back on the tower…consider them time lost forever.)  Would your tower look solid? Like Swiss cheese? Or worse yet, fall over? Be careful not to mischaracterize more of your time as “supporting a tactic” than is realistic. As I discuss in this post , a good portion of reviewing emails, voicemails or news that’s widely disseminated doesn’t truly support the tactics above.

If you think there’s room for improvement (I find over 90% of analysts I coach want help in this area), go to Step 3, by setting aside 15 minutes every week to have a meeting with yourself.  Ensure it’s at a quiet, uninterrupted time when you have access to your calendar and to-do list (e.g. Saturday morning, Friday afternoon, Sunday evening).  At each meeting, look at your calendar and ask yourself these questions:

• What did I do this past week that supported the 6-8 tactics above?
• Are my activities ensuring all of my key tactics are being supported?
• What do I have scheduled on my calendar for the next week that will support my key tactics above?

The best analysts fill their days with the right balance of activities that ultimately support all of their tactics, which in turn allows them achieve their goals.  They are all aligned like the pyramid below.  This post may help if you’re looking for steps to get more efficient with your time.

If you want to make improvements in this area, I challenge you to immediately open your calendar (before finishing this post) and create a recurring event for your 15-minute meeting going forward (mine is at 9 am every Saturday). If, after four weeks, you don’t see a major improvement, let me know because you’ll be the first analyst I know where following these steps didn’t have a meaningful impact.

This Best Practice Bulletin™ targets #6. Productivity of GAMMA PI™, within our Pathway to Success Framework

Let me know if this Best Practice Bulletin™ helps and how I can improve upon this best practice. If you’re interested in exploring this topic further, AnalystSolutions provides equity research training with a specialized workshop to help Maximize Your Time for Alpha Generation .

Improve you or your team’s stock picking and communication skills with our equity research analyst training tools, which includes workshops such as the one above, as well as our GAMMA PI™ assessment and one-on-one coaching .  Also, consider ordering the book that inspired the founding of AnalystSolutions and the Best Practices Bulletin: Best Practices for Equity Research Analysts .

Visit our new Resource Center to find more helpful articles, reference cards, and advice towards your growth as an Equity Research Analyst.

©AnalystSolutions LLP All rights reserved.  James J. Valentine, CFA  is author of  Best Practices for Equity Research Analysts , founder of  AnalystSolutions  and was a top-ranked equity research analyst for ten consecutive years

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• 31 min read

How to Ace Your Equity Research Interview: Answers to the 30 Most Common Questions

Crushing your equity research interview: master the 30 most common questions with these expert answers.

Are you gearing up for an equity research interview and feeling overwhelmed by the thought of the questions you may be asked? Don't worry, we've got you covered! In this article, we will equip you with expert answers to the 30 most common questions you're likely to encounter during an equity research interview.

From market analysis and valuation techniques to industry trends and financial modeling, we will provide you with comprehensive insights and actionable tips that will help you ace your interview.

Our team of experienced professionals has curated this guide to ensure that you not only have a solid foundation of knowledge but also the ability to confidently articulate your thoughts and stand out from other candidates.

By mastering the 30 most common questions, you'll be well-prepared to showcase your understanding of the industry and prove your value as a potential equity research analyst.

Don't let the fear of the unknown hold you back. It's time to crush your equity research interview with confidence and come out victorious. Read on to discover the expert answers that will set you apart from the competition.

Importance of Preparing for Equity Research Interviews

Preparing for an equity research interview is crucial if you want to stand out from the crowd and secure your dream job. The competition in the finance industry is fierce, and employers are looking for candidates who not only possess the necessary technical skills but also have a deep understanding of the industry and can think critically.

By dedicating time to prepare for the interview, you demonstrate your commitment and enthusiasm for the role. It shows that you are willing to go the extra mile to succeed and that you have a genuine interest in the field of equity research.

Research the company you are interviewing with, understand their investment philosophy, and familiarize yourself with the latest industry news and trends. This will not only help you answer questions more effectively but also enable you to ask intelligent questions during the interview, showcasing your genuine interest and enthusiasm.

Lets Explore Technical, Fit and Behavioral Interview Questions

Q1- tell me the difference between cyclical and growth industries and how they are affected by external factors.

Suggested Answer: Cyclical industries are industries that experience regular ups and downs in business activity, often in line with the overall business cycle. Examples of cyclical industries include automotive, construction, and retail. These industries tend to do well when the economy is growing, but suffer during recessions.

Growth industries, on the other hand, are industries that are experiencing consistent and sustained growth. Examples of growth industries include technology, healthcare, and renewable energy. These industries tend to be less affected by the overall business cycle and continue to grow even during recessions.

External factors that can affect cyclical and growth industries include changes in government policies, technological advancements, shifts in consumer preferences, and economic conditions such as interest rates and inflation. For example, changes in tax policies or regulations can affect the construction and automotive industries, while advancements in technology can disrupt or benefit the growth of technology companies.

Q2- Where do you see the market in 5-10 years and why do you believe so?

Suggested Answer: It is difficult to predict with certainty what the stock market will look like in 5-10 years, however, based on current demographic trends, government finances, and GDP growth projections, it is likely that the S&P 500 will remain relatively stable and may even experience modest growth over this time period. Factors such as inflation, consumer spending, and the Federal Reserve's quantitative easing policies will also play a role in determining the market's performance. Additionally, the development of new technologies and the emergence of innovative new companies could also have a positive impact on the market in the long-term.

Q3- Tell me about what is the P/E ratio and how would you use it to compare companies?

Suggested Answer: The P/E ratio , or price-to-earnings ratio, is a financial ratio that compares a company's stock price to its earnings per share. It is calculated by dividing a company's current stock price by its earnings per share (EPS) . The P/E ratio is often used to measure a company's valuation and to compare the valuations of different companies.

A high P/E ratio may indicate that a company's stock is overvalued, while a low P/E ratio may indicate that a company's stock is undervalued. However, it is important to note that a high P/E ratio for one company does not necessarily mean that the company is overvalued, as different industries and sectors have different average P/E ratios.

When comparing companies, it is important to compare P/E ratios within the same industry or sector, as different industries and sectors have different average P/E ratios. For example, technology companies tend to have higher P/E ratios than utilities companies.

It's also important to consider the company's growth prospects, as companies with higher growth prospects tend to have higher P/E ratios. A company with a high P/E ratio but high growth prospects may be more attractive than a company with a lower P/E ratio but lower growth prospects.

Additionally, other factors such as debt levels, profitability, and cash flow should also be considered when evaluating a company. The P/E ratio alone should not be the only metric used to compare companies, it is one of the many metrics used to evaluate a company's performance and its future growth.

Q4- Tell me about some top Indexes in NSE and BSE?

Suggested Answer: The NIFTY 50 Index is one of the most popular and widely-followed indices in the Indian stock market. It consists of the 50 largest and most liquid stocks listed on the National Stock Exchange (NSE). Other popular indices in the NSE include the Nifty Auto, Bank, Financial Services, FMCG, IT, Media, Pharma, Private Bank, and PSU indices. On the Bombay Stock Exchange (BSE), popular indices include the SENSEX, BSE MIDCAP, BSE SMALLCAP, BSE 100, BSE 200, BSE 500, BSE Auto, BSE BankEx, BSE Consumer Durables, BSE Capital Goods, BSE FMCG, BSE HealthCare, BSE IT, BSE Metal, BSE Oil & Gas, BSE PSU, BSE TECk, BSE Realty, BSE SME IPO, S&P BSE CARBONEX, S&P BSE GREENEX, S&P BSE Shariah 50, BSE IPO, BSE POWER, and S&P BSE SmallCap indices.

Q5- Tell me about the market capitalization?

Suggested Answer: Market capitalization, often referred to as "market cap," is a measure of the value of a company. It is calculated by multiplying the current stock price of a company by the number of shares outstanding.

For example, if a company has 10 million shares outstanding and its stock price is $50 per share, its market capitalization would be $500 million.

Market capitalization is used to classify a company as small-cap, mid-cap, or large-cap. Small-cap companies have a market capitalization of less than $2 billion, mid-cap companies have a market capitalization of between $2 billion and $10 billion, and large-cap companies have a market capitalization of more than $10 billion.

The market capitalization of a company can be used as a measure of its size and can be used to compare it to other companies in the same industry or sector. For instance, a company with a large market capitalization may have more resources and be more financially stable than a company with a smaller market capitalization. However, It is important to note that market capitalization alone doesn't indicate the company's overall financial health, it should be considered along with other financial metrics such as revenue, earnings, and debt levels.

Additionally, the market capitalization can change with the stock price, it means that if a company's stock price increases, the market capitalization will increase as well, and if the stock price decreases, the market capitalization will decrease as well.

Q6- Where is the dollar vs the INR?

Suggested Answer: The current exchange rate for US Dollar (USD) to Indian Rupee (INR) is 81.41. This rate is up from 81.32 the previous market day and up from 74.41 one year ago.

Q7- What is the 10-year T-Note rate?

Suggested Answer: The 10-year T-Note rate is currently 3.482%, with an open yield of 3.398%, a day high of 3.501%, a day low of 3.389%, and a previous close of 3.399%. The current price of the 10-year T-Note is 105.2969, with a price change of -0.7188 and a price change percentage of -0.6797%. The coupon rate is 4.125% and the maturity date is November 15, 2032.

Q8- What is the price of gold 1 ounce?

Suggested Answer: The spot price for 1 ounce of gold is currently $1,934.69.

Q9- How to evaluate P/E ratio to determine if a stock is cheap If you don't have comparable companies data ?

Suggested Answer: If you don't have comparable companies data, there are a few ways to evaluate a P/E ratio to determine if a stock is cheap:

Compare the P/E ratio to historical levels: Look at the company's P/E ratio over the past few years to see if it is currently high or low compared to its historical levels. If the current P/E ratio is lower than its historical levels, it may be considered cheap.

Compare the P/E ratio to the industry average: Look at the average P/E ratio for the industry the company operates in. If the company's P/E ratio is lower than the industry average, it may be considered cheap.

Compare the P/E ratio to the broader market: Look at the P/E ratio of a broad-market index, such as the S&P 500, to see how the company's P/E ratio compares to the broader market. If the company's P/E ratio is lower than the broader market, it may be considered cheap.

Compare the P/E ratio with other valuation metrics: P/E ratio should be used in conjunction with other valuation metrics such as Price to Sales ratio(P/S) , Price to Book value (P/B) , Price to cash flow (P/CF) etc.

Q10-How to analyze different sectors of companies?

There are several ways to analyze different sectors of companies:

Research the industry: Understand the key trends, drivers and challenges that are shaping the industry. Look at the size and growth prospects of the industry, and identify any major players or new entrants.

Analyze the financials: Look at the financial statements of companies within the sector to identify key metrics such as revenue, profit margins, and return on equity. Compare these metrics across companies to identify any outliers or trends.

Evaluate the management team: Look at the leadership and management team of the companies within the sector. Assess their experience, track record, and strategic vision.

Look at the products and services: Analyze the products and services offered by the companies within the sector. Look at the quality of the products, their pricing, and the company's distribution channels.

Analyze the competition: Look at the competitive landscape of the sector, identify the key players and understand their strengths and weaknesses.

Evaluate external factors: Consider external factors such as government policies, technological advancements, shifts in consumer preferences and economic conditions that may affect the sector.

Consider valuation: Analyze the valuation of companies within the sector, including metrics such as the P/E ratio , Price to Sales ratio(P/S) , Price to Book value (P/B) , Price to cash flow (P/CF) etc.

Look at the risks: Identify and evaluate any significant risks associated with investing in the sector, such as regulatory changes, industry consolidation, or changes in consumer preferences.

It's important to note that the analysis process may vary depending on the sector, and the above-mentioned points are general guidelines. It's important to have a good understanding of the sector and the companies within it, and to use a variety of metrics and analysis techniques to build a comprehensive picture of the sector's performance and potential.

Q11- What does the cost structure like for the Manufacturing industry, How will you evaluate and what are their biggest cost components?

The cost structure for the manufacturing industry can vary depending on the type of products being produced and the manufacturing process used. However, there are some common cost components that are typically found in the manufacturing industry:

Raw materials: This includes the cost of the materials used to produce the final product, such as metals, plastics, and chemicals.

Labor: This includes the cost of wages and benefits for the employees involved in the manufacturing process, as well as any contract labor costs.

Manufacturing overhead: This includes costs such as utilities, rent, insurance, and property taxes for the manufacturing facility. It also includes costs for equipment maintenance, tooling, and supplies.

Distribution and logistics: This includes the cost of transporting the finished products from the factory to the customer, including shipping, warehousing, and inventory carrying costs.

Research and Development: This includes the costs of researching, developing, and testing new products or processes.

Selling, general and administrative expenses: This includes costs such as marketing, advertising, and administrative expenses.

To evaluate the cost structure of a manufacturing company, you can use a number of financial metrics such as cost of goods sold (COGS) as a percentage of revenue, and gross margin, which is calculated as gross profit divided by revenue. These metrics can be used to compare the company to its competitors and to industry averages.

It's important to note that the cost structure of a manufacturing company can change over time, for example, with changes in raw material prices, labor costs, or technological advancements. It's important to keep track of these changes and how they affect the company's financial performance.

Another important factor to consider is the company's production processes and whether it's able to achieve economies of scale, which could help to lower costs and improve margins. Also, the company's pricing strategies and how it responds to the market conditions and competition should also be taken into account.

Q12-Let’s say that you run a French fries franchisee You have two options The first is to increase the price of each of your existing products by 10% (imagining that there is price inelasticity) And the second option would be to increase the total volume by 10% as a result of a new product Which one should you do and why?

Suggested Answer: It depends on the specifics of your French fries franchise and the market conditions. Both options have the potential to increase revenue, but they have different implications for your business.

Increasing the price of each existing product by 10% may result in a short-term increase in revenue, but it could also lead to a decline in demand if customers are price sensitive. If the demand for your products is inelastic, meaning that changes in price do not significantly affect the quantity demanded, then this option may be a viable one. However, if the demand is elastic, meaning that changes in price do significantly affect the quantity demanded, then this option may lead to a decrease in overall revenue.

Adding a new product to your menu, on the other hand, has the potential to increase the total volume of sales without affecting the price of your existing products. This option may appeal to customers looking for something new and different, and it could lead to a 10% increase in total volume without having to risk losing customers due to a price increase. However, launching a new product also comes with its own set of costs such as R&D, marketing, and testing.

In summary, if you can increase the price of existing products without losing too much customers then the first option will be preferable. But if you think that a price increase could lead to a significant decline in demand, it would be safer to launch a new product to increase the volume. Additionally, you can also consider other options such as creating bundle deals, or offering discounts for large orders. It's important to have a good understanding of your customer base and the market conditions, and to use a variety of strategies and analysis techniques to build a comprehensive picture of the best way to increase your revenue.

Q13- What do you think the income statement would look like for a Pharma company like Sun pharma, abbott and cipla? What would their COGS be? How about their operating margin?

Suggested Answer: The income statement  for a pharmaceutical company like Sun Pharma, Abbott, and Cipla would likely include the following key elements:

Revenues: This would include revenues from the sale of pharmaceutical products, such as prescription drugs and over-the-counter medications.

Cost of goods sold (COGS): This would include the cost of raw materials, labor, and manufacturing overhead associated with producing the pharmaceutical products. For a pharmaceutical company, the cost of goods sold would include the cost of the active pharmaceutical ingredients (API) and other raw materials, as well as the cost of manufacturing and packaging.

Gross profit: This is calculated by subtracting COGS from revenues. Gross profit represents the amount of revenue that a company has left over after accounting for the direct costs of producing its products.

Operating expenses: This includes expenses such as research and development, sales and marketing, general and administrative expenses.

Operating income: This is calculated by subtracting operating expenses from gross profit. Operating income represents the amount of money a company has left over after accounting for its direct costs of production and its operating expenses.

Other income/expenses: This includes items such as interest income, foreign exchange gains/losses, and other income or expenses that are not directly related to the company's main operations.

Net income: This is calculated by subtracting other income/expenses from the operating income. Net income represents the company's overall profit or loss.

The COGS and operating margin of a pharmaceutical company can vary depending on a number of factors, such as the type of products they produce, the complexity of their manufacturing process, and the level of competition in the market. However, on average, the operating margin of a pharmaceutical company is around 20-30%.

It's important to note that the above-mentioned details are not specific to Sun Pharma, Abbott, and Cipla, and it's important to check their financial statements for more accurate information. Additionally, the income statement of a pharma company is affected by many factors such as patent expiration, regulatory environment, competition, and the global economy. Therefore, it's important to keep track of these factors and how they affect the company's financial performance.

Q14- I see that you have no market experience and what should make me believe that this is something you are seriously interested in?

Suggested Answer: I understand that a lack of market experience can be a concern when considering me for a role in Equity Research. However, I have done extensive research into the industry and have a strong understanding of the key concepts and processes. My dedication to improving my knowledge and skills in this field is evidenced by my willingness to learn and grow within this profession. I have developed a strong analytical mindset and excellent problem-solving skills that I believe will make me a valuable asset to any Equity Research team. Furthermore, I am passionate about the industry and have a keen interest in the financial markets, which I believe will make me a great fit for this role.

Q15- Why are you looking for an equity research job?

Suggested Answer: I am looking for an equity research job because I believe that I have the skills necessary to perform the job duties. I have a strong understanding of accounts and financial fundamentals and have the ability to analyze the specifics of individual companies to determine if the security is appropriately priced. Additionally, I have the ability to create financial models to calculate the future value of equity shares, and I am familiar with the financial statements of the companies I research.

Q16- Which stock do you pitch for me and why?

Suggested Answer: The stock I would pitch depends on which company you are interviewing for. Generally, when pitching a stock for an equity research interview, you should focus on a company that is relevant to the firm and sector you are interviewing for. You should also make sure to research the company thoroughly, identify the key drivers that are affecting the stock, and consider the valuation metrics and catalysts for the company. Additionally, you should also consider any potential risks and how you can mitigate them.

Q17- Can you tell me what valuation techniques you use if I ask you to value a company?

Suggested Answer: There are several valuation techniques that can be used to value a company, some of the most common ones include:

Discounted Cash Flow (DCF) analysis: This is a method of valuing a company based on the present value of its future cash flows. It involves forecasting the company's future cash flows, and then discounting them back to their present value using a discount rate. This method is considered to be one of the most accurate ways of valuing a company as it takes into account both the company's current and future performance.

Price to Earnings (P/E) ratio : This is a method of valuing a company based on the ratio of its stock price to its earnings per share (EPS). It is used to compare a company's valuation to that of its peers and to the overall market.

Price to Sales (P/S) ratio : This is a method of valuing a company based on the ratio of its stock price to its revenue. It is used to evaluate a company's valuation by comparing its stock price to its revenue.

Price to Book (P/B) ratio : This is a method of valuing a company based on the ratio of its stock price to its book value (the value of its assets minus its liabilities). It is used to evaluate a company's valuation by comparing its stock price to its book value.

Dividend Discount Model (DDM) : This is a method of valuing a company based on the present value of its future dividends. It involves forecasting the company's future dividends, and then discounting them back to their present using a discount rate.

Comparable Company Analysis: This method involves analyzing the financials of similar companies within the same industry and using those companies' valuations as a benchmark for the company being valued.

It's important to note that no single method is perfect, and a combination of these methods should be used to get the best estimate of a company's value. Additionally, it's important to keep track of the company's financial performance, its growth prospects, the industry trends, and the overall economic conditions.

Q18- To your best ability What do you think is the main reason stocks fell by 20%?

Suggested Answer: It is difficult to determine the main reason for a stock market decline without more specific information about the timing and circumstances of the decline. However, some possible reasons for a 20% decline in stock prices include:

Economic downturn: A recession or other economic downturn can lead to a decline in corporate profits and consumer spending, which in turn can lead to a decline in stock prices.

Interest rate changes:  A sudden increase in interest rates can affect the ability of companies to borrow money and invest in growth, and this can lead to a decline in stock prices.

Political instability: Political instability, such as a war or a change in government policies, can create uncertainty and lead to a decline in stock prices.

Natural disasters: Natural disasters can disrupt production and supply chains, and this can lead to a decline in stock prices.

Geopolitical risks: Geopolitical risks such as trade tensions, sanctions, or other global events can affect the global economy and lead to a decline in stock prices.

Company-specific events: A company-specific event such as a financial scandal, a product recall, or a change in management can lead to a decline in stock prices.

It's important to note that a decline of 20% in stock prices could be a result of a combination of these reasons. Additionally, it's important to keep in mind that stock market fluctuations are normal and are to be expected. It is also important to note that past performance does not indicate future performance, and it is important to conduct thorough research and analysis before making any investment decisions.

Q19- Tell me about what PE ratio is a popular valuation metric and what the PE ratio number tries to tell us?

Suggested Answer: The Price-to-Earnings (P/E) ratio is a popular valuation metric that compares a company's current stock price to its earnings per share (EPS) . It is calculated by dividing the current stock price by the EPS. The P/E ratio is used to measure the relative value of a company's stock and to compare it to the value of other companies in the same industry or to the overall market.

A high P/E ratio indicates that investors are willing to pay a premium for the company's earnings, while a low P/E ratio indicates that the stock is relatively cheap compared to the company's earnings. However, it's important to note that a high P/E ratio does not necessarily mean that a stock is overpriced, and a low P/E ratio does not necessarily mean that a stock is underpriced.

The P/E ratio tries to tell us how much investors are willing to pay for a company's earnings. A high P/E ratio may indicate that investors have high expectations for the company's future earnings growth, while a low P/E ratio may indicate that investors have lower expectations for the company's future earnings growth. However, it's important to keep in mind that the P/E ratio is only one metric and should be used in conjunction with other financial metrics such as revenue, earnings, and debt levels, to get a more comprehensive picture of the company's performance.

Additionally, it's important to note that different sectors have different P/E ratio averages, a company in a sector with higher growth prospects may have a higher P/E ratio, while a company in a sector with lower growth prospects may have a lower P/E ratio. Therefore, it's important to compare the P/E ratio of a company to the average P/E ratio of the industry or sector it operates in.

Q20- Tell me something about yourself that is not on your resume?

Suggested Answer: When it comes to equity research, I'm highly knowledgeable and passionate. I'm constantly reading and researching the stock market, and I'm always looking for new and creative ways to analyze information. Additionally, I'm a great communicator and have a great ability to explain complex financial concepts in a simple and concise way. I'm also able to build strong relationships with clients and colleagues, which is essential in the equity research field.

Q21- Explain to me the type of financial modelling?

Suggested Answer: Financial modeling is the process of creating a numerical representation of a financial situation, typically using spreadsheet software, in order to make informed decisions. There are several types of financial models, each with their own specific purpose and structure.

Financial forecasting models: These models are used to predict future financial performance based on historical data and other relevant information. They can be used to forecast revenue, expenses, cash flow, and other financial metrics.

Valuation models: These models are used to estimate the intrinsic value of a company or asset. The most common valuation models include discounted cash flow (DCF) analysis, price-to-earnings (P/E) ratio, and comparable company analysis.

Budget and planning models: These models are used to create a financial plan for a company, such as a budget or a strategic plan. They can be used to forecast revenue, expenses, and cash flow, and to identify potential risks and opportunities.

Risk and sensitivity models: These models are used to analyze the potential risks and uncertainties that a company may face. They can be used to simulate various scenarios and to estimate the potential impact of different risks on the company's financial performance.

Monte Carlo simulation models: These models are used to analyze the potential outcomes of a decision under uncertainty. They use probability distributions and random sampling to simulate different scenarios and to estimate the potential range of outcomes.

Real-options models: These models are used to evaluate investment opportunities by considering the flexibility of a company. They include the ability to make investment decisions based on future developments in the market or industry.

It's important to note that financial modeling is an iterative process, and the model should be updated and refined as new information becomes available. Additionally, the choice of the financial model should be based on the specific purpose and the type of decision that needs to be made, and it's important to have a good understanding of the assumptions and limitations of the model.

Q22- Do you understand the DCF model and Walk me through the process?

Suggested Answer: Yes, I understand the Discounted Cash Flow (DCF) model. It is a method of valuing a company based on the present value of its future cash flows. The process of creating a DCF model typically includes the following steps:

Forecasting future cash flows: The first step in creating a DCF model is to forecast the company's future cash flows. This typically involves forecasting revenue, costs, and expenses for a period of time, usually 5 to 10 years.

Determine the discount rate: The next step is to determine the discount rate, which is used to discount the future cash flows back to their present value. The discount rate is typically based on the company's cost of capital and reflects the risk associated with the cash flows.

Calculate the present value of future cash flows: Once the future cash flows and discount rate have been determined, the present value of the cash flows can be calculated by dividing each year's cash flow by (1 + discount rate) to the power of the number of years in the future.

Sum the present value of future cash flows: The final step is to sum the present value of all the future cash flows to arrive at the total present value of the company.

Terminal Value calculation: Terminal value is the value of a company beyond the projection period and it is calculated by estimating the perpetuity growth rate and multiplying it by the last year's projected free cash flow(FCF) and then discounting it back to the present value.

Sum the present value of terminal value: The final step is to add the present value of the terminal value to the present value of the future cash flows.

It's important to note that the DCF model is sensitive to the assumptions used in forecasting future cash flows and determining the discount rate, so it's important to consider a range of scenarios and to be aware of the limitations of the model. Additionally, the DCF model

Q23- Can you tell me about any previous research work you have done?

Suggested Answer: I have done extensive research in the field of equity research. My research has focused on the evaluation of companies and their stocks, which includes analyzing their financials and market trends. I have also done analysis on valuation techniques such as Discounted Cash Flow Analysis, Comparable Companies Analysis, and Sensitivity Analysis. In addition, I have done research into the capital markets and the function they serve. Finally, I have done research on the most important factors to consider when analyzing a company, how to determine if a company is undervalued or overvalued, and the most common ratios and metrics used for company analysis.

Q24- Can you tell me which industry has a future?

Suggested Answer: The five industries with a promising future are Analytics and Big Data, Cybersecurity, Health Care for the Aging, Renewable Energy and Drones. These industries are expected to experience rapid growth in the coming years due to their relevance to the current technological landscape.

Q25- What type of valuation work have you done in the previous company?

Suggested Answer: I have worked on a variety of valuation techniques including Discounted Cash Flows, Comparable Companies Analysis, Free Cash Flows , Free Cash Flow to Equity , and Sensitivity Analysis. I have also worked on Equity Research Reports, where I have been responsible for writing and analyzing the industry overview, company financials and ratios, valuations and projections, management overview and recommendation.

Q26- Tell me about which industry you like to analyze and why?

Suggested Answer: One popular industry for analysis is technology. The technology industry is constantly evolving and is often at the forefront of innovation. Companies in this industry can have high growth potential and can be a source of disruptive technologies. Analyzing technology companies can be interesting because of the potential for significant returns on investment, the potential for new products and services, and the potential for market disruption.

Another popular industry for analysis is healthcare. The healthcare industry is a large and growing sector that is essential to the well-being of society. Companies in this industry can have a significant impact on people's lives, and they can be a source of innovative medical treatments and technologies. Analyzing healthcare companies can be interesting because of the potential for long-term growth, the potential for new products and services, and the potential for positive social impact.

Retail industry is also interesting to analyze, as it is a consumer-facing industry that reflects the broader economy and consumer sentiment. Companies in this industry can provide insight into consumer spending patterns, trends in e-commerce, and the health of brick-and-mortar retail.

Furthermore, the financial industry is also a popular one for analysis, as it provides insight into the broader economy and the performance of different sectors. Companies in this industry can provide insight into the performance of different asset classes, the health of the banking sector, and the overall performance of the global economy.

Ultimately, the choice of industry to analyze depends on an individual's interest, expertise and the decision they want to make. It's important to conduct a thorough research and analysis of the industry and the company before making any investment decisions.

Q27- Suppose I am given a task to make a report for an automobile company. How will you gather data and information?

Suggested Answer: Gathering data and information for a report on an automobile company can involve several steps and sources. Some possible methods to gather data and information include:

Financial statements: One of the most important sources of information is the company's financial statements, such as the income statement, balance sheet, and cash flow statement. These statements provide a detailed overview of the company's financial performance and can be used to analyze trends, profitability, and liquidity.

Industry reports and publications: Another important source of information is industry reports and publications. These can provide information on the overall performance of the automobile industry, trends, and market conditions.

Company press releases and annual reports:  Company press releases and annual reports can provide information on the company's strategy, performance, and plans for future growth.

Government data: Government data can provide information on the market size, growth rate, import/export data, and other macroeconomic data of the automobile industry.

Online research: Online research can be used to gather information on the company's competitors, the company's market position, and the company's reputation.

Surveys and customer feedback: Surveys and customer feedback can be used to gather information on customer satisfaction, brand perception, and customer loyalty.

Consultation with experts: Consultation with experts in the field of automobile industry, such as industry analysts, consultants, or professors can provide valuable insight and information.

It's important to note that the data and information gathered should be reliable, accurate, and up-to-date. Additionally, it's important to ensure that the data and information gathered is relevant to the report and the decision that needs to be made.

Q28- Being a successful analyst what skills do you have ?

Suggested Answer: To be a successful analyst in Equity Research, I have strong numerical skills, good knowledge of finance and investments, and excellent communication skills. I am also detail-oriented, analytical, and have excellent writing skills. Furthermore, I have the ability to analyze data and financial statements, understand investments and markets, and have a deep understanding of the industry. Additionally, I have the ability to think critically and come up with innovative solutions.

Q29- What is the main reason that stocks go up or down?

Suggested Answer: Stocks go up or down based on a variety of factors, some of the most important ones include:

Company-specific news and events: This includes factors such as earnings reports, product launches, management changes, and mergers and acquisitions. Positive news and events can cause a stock to go up, while negative news and events can cause a stock to go down.

Economic conditions: Economic conditions such as interest rates, GDP growth, and inflation can affect the overall performance of the stock market and individual stocks. Strong economic conditions can cause stocks to go up, while weak economic conditions can cause stocks to go down.

Industry trends: Industry trends such as technological advancements, changing consumer preferences, and regulatory changes can affect the performance of individual stocks and sectors. Positive industry trends can cause stocks to go up, while negative industry trends can cause stocks to go down.

Political and geopolitical events:  Political and geopolitical events such as elections, war, and trade tensions can affect the stock market and individual stocks. Uncertainty caused by these events can cause stocks to go down, while positive developments can cause stocks to go up.

Market sentiment: Market sentiment refers to the overall mood of investors and traders. Positive market sentiment can cause stocks to go up, while negative market sentiment can cause stocks to go down.

It's important to note that the stock market is complex and influenced by multiple factors, therefore, it's hard to predict the performance of the stock market or a specific stock. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q30- Give me your overview on the economy and the stock market?

Suggested Answer: The economy and the stock market are closely related and can affect each other in a number of ways. A strong economy can lead to higher corporate profits and consumer spending, which can in turn lead to higher stock prices. Conversely, a weak economy can lead to lower corporate profits and consumer spending, which can lead to lower stock prices.

Economic indicators such as GDP, inflation, and interest rates can also affect the stock market. For example, a low unemployment rate and a high GDP growth rate are usually considered to be positive indicators for the stock market, as they suggest a strong economy. On the other hand, high inflation and interest rates can be negative for the stock market, as they can lead to a decrease in consumer spending and corporate profits.

It's important to note that the stock market is complex and influenced by multiple factors, including global events, political and geopolitical developments, and company-specific events. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q31- What are the current interest rates and what do you think about in future?

Suggested Answer: The current average interest rate for a 30-year fixed mortgage is 6.33%. Bankrate's forecast shows rates continuing to break records, with the average credit card rate rising to 20.5 percent by the end of 2023. Long-term interest rates are likely to stay below 4% this year, trending down as the economy slows and the inflation rate comes down. The Federal Reserve has forecast the Federal Funds Rate to be 2.6% by 2023, before levelling off. If the historically high inflation of 2022 continues to dissipate and the economy falls into a recession, it's likely mortgage rates will decrease in 2023. Kiplinger's Economic Outlooks project the Fed-Funds Rate and 10-year Treasury yield to be 1.75% and 2.75%, respectively, in 2026.

Q32- If interest rates were to go up then which sectors do you think would benefitted and which would stand to disadvantage?

Suggested Answer: Interest rate changes can have a significant impact on different sectors of the economy. Generally speaking, when interest rates go up, it becomes more expensive for companies and consumers to borrow money, which can have a negative impact on certain sectors.

Sectors that may be negatively impacted by a rise in interest rates include:

Real estate: Higher interest rates can make it more expensive for individuals and companies to borrow money to buy or refinance properties. This can lead to a decrease in demand for real estate and a decline in property prices.

Consumer discretionary: Higher interest rates can make it more expensive for consumers to borrow money to buy cars, appliances, and other consumer goods. This can lead to a decrease in consumer spending and a decline in demand for consumer discretionary goods.

Financials: Higher interest rates can make it more expensive for banks to borrow money, which can lead to a decline in their profits. Additionally, when interest rates rise, the spread between short-term and long-term interest rates narrows, which can negatively impact the profitability of the banks.

Sectors that may be positively impacted by a rise in interest rates include:

Utilities: Utility companies often have long-term debt and a stable cash flow, which means they can afford to pay higher interest rates on their debt.

Consumer staples: Companies that produce consumer staples such as food, beverages, and household goods are less affected by changes in interest rates as they tend to be necessities and have a stable demand.

Technology: Companies in the technology sector, such as semiconductors, software, and internet-based companies, are less impacted by interest rate changes as they are driven by innovation and advancements in technology rather than interest rate changes

It's important to note that interest rate changes can have both positive and negative impacts on different sectors and that interest rate changes are only one of the many factors that can influence the stock market. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q33- If you were to get a job here then which sector or industry would you select and why?

Suggested Answer: In general, the selection of a sector or industry to focus on would depend on an individual's interests, expertise, and career goals. Some factors that can be considered when selecting a sector or industry include:

Growth prospects: Some sectors and industries have higher growth prospects than others, which can provide opportunities for companies to increase their revenue and profits.

Competitive landscape: Some sectors and industries are more competitive than others, which can affect the profitability of companies operating in those sectors.

Regulatory environment: Some sectors and industries are more heavily regulated than others, which can affect the profitability of companies operating in those sectors.

Industry trends: Some sectors and industries are at the forefront of innovation and technology, which can provide opportunities for companies to develop new products and services.

Personal interest: It's important to choose an industry or sector that you have an interest in, as it will help you to stay motivated and engaged in the research process.

Ultimately, the choice of a sector or industry to focus on would depend on an individual's specific interests, expertise, and career goals. It's important to conduct thorough research and analysis of the sector or industry and the companies operating in that sector before making a decision.

Q34- How would you compare Consumer Durable firms ?

When comparing consumer durable firms, there are several factors that can be considered, including:

Financial performance: This includes factors such as revenue, profits, earnings per share (EPS) , return on equity (ROE) , and other financial metrics. Comparing these metrics across firms can provide insight into the financial performance of each firm.

Market share:  Market share is an important factor to consider when comparing firms in the consumer durable industry. Firms with a larger market share are likely to have more pricing power and be more stable than firms with a smaller market share.

Product and brand portfolio: Firms with a diversified product and brand portfolio are likely to be more stable than firms that rely on a single product or brand.

Distribution network: Distribution network is an important factor to consider when comparing firms in the consumer durable industry. Firms with a strong distribution network are likely to be able to reach more customers and generate more sales than firms with a weaker distribution network.

Competitive Landscape: Consumer durable firms compete with each other based on product quality, price, and services offered. Evaluating the strengths and weaknesses of the firms in terms of these factors can provide an insight into their competitiveness.

Management and leadership: The management team and leadership of a company can have a significant impact on the performance of the company. Compare the management teams and leadership of the firms to assess their experience, track record, and stability.

Valuation Metrics: Valuation metrics such as Price to Earnings ratio , Price to Sales ratio , Price to Book ratio , and enterprise value to EBITDA  can be used to compare the relative valuations of the firms.

It's important to note that these are just a few of the many factors that can be considered when comparing consumer durable firms, and that the choice of factors to consider will depend on the specific decision that needs to be made. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q35- Suppose you write a research report BUY recommendation for any IT stock for long term and you know 2 days later the stock price falls by 7%. What would be your recommendation?

Suggested Answer: If the stock price falls by 7% two days after I've made a BUY recommendation, I would consider the current market sentiment and analyze the potential risk factors that may have caused the stock to fall. I would also analyze the current market conditions and the outlook for the industry. If I still find potential for growth and the risks are manageable, I would likely maintain my recommendation. However, if the risks are significant and the outlook for the industry is poor, I would likely change my recommendation to HOLD or SELL.

Q36- How many companies are listed in BSE and NSE?

Suggested Answer: There were around 5,500 companies listed on the Bombay Stock Exchange (BSE) and around 1,800 companies listed on the National Stock Exchange (NSE) in India.

Q37- Tell me about the Analyst to Associate ratio?

Suggested Answer: The analyst to associate ratio refers to the ratio of junior-level analysts to more senior-level associates in an investment banking or financial services firm. In general, the ratio is used as an indicator of the firm's overall staffing levels and can provide insight into the firm's level of efficiency and productivity.

The ratio can vary widely depending on the firm and the specific area of the business. For example, in a research department, the ratio of analysts to associates may be higher than in an investment banking department, where the ratio may be lower. In general, a lower ratio indicates that the firm may be more focused on cost-cutting and efficiency, while a higher ratio may indicate that the firm is more focused on growth and expansion.

It's also worth noting that a lower ratio would generally imply a higher workload for each individual analyst and therefore a higher turnover rate.

Q38-Suppose you are concall in quarterly earnings and you have to ask a question to the CEO about the future earnings then what would you ask first?

Suggested Answer: What are the key drivers of the company's projected earnings growth for the next quarter and beyond? Are there any specific initiatives or plans in place that the company believes will drive increased revenue and profitability?

Q39-How do you rank buy-side clients?

Suggested Answer: Buy-side clients, such as mutual funds, hedge funds, and pension funds, can be ranked based on a variety of factors, including assets under management (AUM), performance, and trading activity. Here are a few examples of how buy-side clients might be ranked:

Assets under management (AUM): Clients with larger AUM tend to be more attractive to sell-side firms, as they may have more capital to invest and can generate more trading volume. Clients can be ranked by AUM, with the largest clients at the top of the list.

Performance: Clients that have a history of strong investment performance may be more attractive to sell-side firms, as they may be more likely to generate returns for their investors. Clients can be ranked by their past performance, with the best-performing clients at the top of the list.

Trading activity: Clients that trade more frequently can generate more revenue for sell-side firms. Clients can be ranked by the amount of trading activity they generate, with the most active clients at the top of the list.

Service needs: Clients that have specific service needs such as research, execution, or customization might be ranked higher based on the firm's capabilities to fulfill those needs.

It's worth noting that these are not the only ways to rank buy-side clients, and different firms may use different criteria based on their own priorities and business models. However, these examples can be a good starting point to evaluate and rank buy-side clients.

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• Policy and Social Care Move Fast: How…

Policy and Social Care Move Fast: How Rapid Qualitative Methods Can Help Researchers Match Their Pace

Date posted:.

The field of social care integration, which refers to the study and implementation of clinically based programs to address the social needs of patients and families, is advancing at an increasingly rapid pace. This acceleration, driven by heightened need post-pandemic as well as mandates at the state and federal levels for health systems to implement screening and referral programs, has increased the urgency for high-quality evidence to support policy decisions about the delivery of social care—in other words, how health systems identify and address social needs, like access to healthy food and safe housing.  

Qualitative research is particularly useful in guiding social care integration as it can shed light on the patient or caregiver experience of participating in social care interventions, barriers to getting help that should be addressed, and appropriate next steps from the perspective of those directly impacted.

However, traditional qualitative data analysis can be time consuming, and evidence-based solutions for addressing families’ social needs from the clinical setting are needed in the short term. In this post, I’ll share how we adapted and applied rapid qualitative methods to a social care-focused study as an example of how this approach can be used to inform social care integration in real time.

Integrating a Rapid Research Approach

The Socially Equitable Care by Understanding Resource Engagement ( SECURE ) study is a mixed method pragmatic trial aimed at understanding how best to increase family-level engagement with social resources from the pediatric health care setting. Caregivers in the study were randomized to complete one of three different social assessments (surveys asking about their social circumstances and/or desire for social resources) before receiving a resource map on their personal smartphone where, if interested, they could search for community resources in their neighborhood. Caregivers also had the option of talking to our study-specific resource navigator to receive additional support finding resources.

The overall goal of the qualitative component of the study is to capture caregivers’ preferences and experiences receiving social care through SECURE. Our traditional qualitative protocol involved transcribing caregiver interviews verbatim, coding transcripts and conducting thematic analysis. Recognizing the need for implementation-oriented results on a fast timeline, our team explored rapid qualitative methodologies to supplement the traditional approach. The rapid methods we chose were derived from existing literature on rapid qualitative approaches, which were then adapted to suit our study’s protocol and the social care field in general.

In our rapid approach, interviewers took notes using a structured template during or immediately after each caregiver interview. The template was designed to capture the data most salient to social care integration efforts such as caregiver’s likes, dislikes and preferences about receiving social care at their child’s doctor’s office. Then, content from the templates was transposed onto an analytic matrix, where we compared data across participants to identify themes. While we explored the full range of themes that emerged from our caregiver interviews in traditional qualitative analysis, we wanted to be sure that rapid analysis focused on findings that would be most applicable to social care integration efforts so the results could inform social care policy at Children’s Hospital of Philadelphia (CHOP) and elsewhere in real time. For example, what parts of participating in SECURE were helpful for caregivers? Did anything make them uncomfortable?

To ensure that our rapid approach produced results in line with those generated through traditional methods, we analyzed ten of our interviews using both traditional and rapid methods and compared the results. This analysis yielded a 92.8% theme match—meaning the two qualitative methods yielded largely the same themes. This builds upon previous literature, indicating that rapid analysis can be an effective tool in capturing implementation-oriented themes from qualitative data.

How the SECURE Study Can Inform Future Research Efforts

Our rapid qualitative methods allowed us to effectively adapt and respond to the quickly evolving landscape of social care integration, even before we had the full study results. I personally saw this first-hand while working with the SECURE team in 2023 conducting caregiver interviews. For example, we were able to inform hospital efforts in response to a recent insurance requirement of health systems to share caregivers' responses to social screening questions. We successfully gathered patients’ feedback on this new requirement and shared this information and suggestions for what CHOP could do to make caregivers feel more comfortable answering social assessment questions.

While not intended to replace traditional qualitative analysis, being able to produce actionable qualitative findings in a timely manner through rapid methods has allowed SECURE findings to help shape social care interventions at CHOP and beyond in real time.

Our hope is that other researchers in social care who face time pressures may find similar rapid qualitative methods as a useful and effective approach to adapt to the dynamic nature of the field and generate family-centered solutions faster than would otherwise be possible.

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What are the Implications of the Dobbs Ruling for Racial Disparities?

Latoya Hill , Samantha Artiga , Usha Ranji , Ivette Gomez , and Nambi Ndugga Published: Apr 24, 2024

• Issue Brief

Note: Figures 12 and 13 were updated on April 26, 2024.

Introduction

The June 2022 Supreme Court ruling in the case Dobbs v. Jackson Women’s Health Organization has significant implications for racial disparities in health and health care. The decision overturned the longstanding Constitutional right to abortion and eliminated federal standards on abortion access that had been in place for nearly 50 years in all states across the country. As a result of Dobbs , large swaths of the country lack abortion access, with a disproportionate impact on those residing in the South and Midwest.

As of April 2024, 14 states have implemented abortion bans, 11 states have placed gestational limits on abortion between 6 and 22 weeks, and 25 states and the District of Columbia provide broader access to abortions after 22 weeks gestation. (This reflects Arizona being counted in the gestational limits category, as implementation of a recently upheld Civil War-era law banning nearly all abortions in the state is still pending amid ongoing court actions.)

Pregnant women seeking abortion that reside in states that prohibit or restrict abortions either have to travel out of state or try to obtain medication abortion pills via a telehealth appointment with an out-of-state clinician, but these options are not accessible to everyone. Some women may turn to self-managed abortions, but some will not be able to obtain an abortion and have to continue a pregnancy they do not want. Additionally, there have been reports of clinicians in states with bans and early gestational limits leaving their states due to the restrictions and criminalization for care that they provide, potentially exacerbating provider shortages in some areas.

With these state-level restrictions in place, people of color residing in those states may face disproportionately greater challenges accessing abortions due to longstanding underlying social and economic inequities, which could exacerbate existing disparities in maternal and infant health. This analysis examines the implications of state restrictions on abortion coverage for racial disparities in access to care and health outcomes. It is based on KFF analysis of data from the Centers for Disease Control and Prevention (CDC), American Community Survey (ACS), Behavioral Risk Factor Surveillance Survey (BRFSS), and Survey of Household Economics and Decisionmaking (SHED) (see Methods ). Throughout this brief we refer to “women” but recognize that some individuals who have abortions do not identify as women, including transgender. Key takeaways include the following:

• Black and American Indian and Alaska Native (AIAN) women ages 18-49 are more likely than other groups to live in states with abortion bans and restrictions . About six in ten Black (60%) and AIAN (59%) women ages 18-49 living in states with abortion bans or restrictions compared with just over half (53%) of White, less than half of Hispanic (45%), and about three in ten Asian (28%) and Native Hawaiian or Pacific Islander (NHPI) (29%) women ages 18-49.
• Many groups of women of color have higher uninsured rates compared to their White counterparts, and, a cross racial and ethnic groups, uninsured rates are higher in states with abortion bans or restrictions than in those that provide broader abortion access . Among women ages 18-49, roughly a fifth of AIAN (22%) and Hispanic (21%) women are uninsured as are 14% of NHPI women and 11% of Black women compared with less than one in ten (7%) of White women. Moreover, uninsured rates for women ages 18-49 are at least twice as high in states that banned abortion compared to those in states with broader access for White (10% vs. 5%), Hispanic (33% vs. 15%), Black (14% vs. 7%), and Asian (10% vs. 5%) women, and nearly three times higher for NHPI women (29% vs. 10%).
• Women of color have more limited financial resources and transportation options than White women, making it more difficult for them to travel out-of-state for an abortion . Some may also face linguistic barriers and have immigration-related fears that create additional challenges to accessing abortions.
• The bans and restrictions on abortions may widen the already stark racial disparities in maternal health, especially since some states do not explicitly have exceptions that allow abortion services when pregnancy is jeopardizing a woman’s health . The restrictions may also contribute to growing provider shortages in some areas, as clinicians are responding to concerns about criminalization and prohibited from offering the full spectrum of pregnancy care. Moreover, abortion restrictions may have negative economic consequences on families and put pregnant people at increased risk for criminalization.

While there have been large inequities in abortion access for many years, the Dobbs ruling opened the door to widening those differences further. Black and AIAN women are more likely to live in states with abortion bans or restrictions. While data on the impact of Dobbs to date on health outcomes is limited to date, many indicators suggest that the ruling may exacerbate longstanding large disparities in maternal and infant health. The issue also has moved to the forefront of policy debates in the U.S. Sixteen percent of women voters, rising to 28% of Black women voters, say abortion is the “ most important issue ” to their vote in the 2024 presidential election.

How do Abortion Rates Vary by Race and Ethnicity?

Data on abortions by race and ethnicity are limited . The federal Abortion Surveillance System from the CDC has been providing annual national and state-level statistics on abortion for decades, based on data that is voluntarily reported by states, DC, and New York City. While most states participate, one notable exception is California, which has many protections for abortion access and is one of the most racially diverse states in the nation. Furthermore, availability of data by race and ethnicity varies among states. The most recent data in the Abortion Surveillance System, from 2021, only includes racial and ethnic data from 31 states and DC and is generally only available for White, Black, and Hispanic women. While we present the data from the Abortion Surveillance System in this brief, we recognize these limitations.

Prior to Dobbs , the abortion rate was higher among Black and Hispanic women compared to their White peers . As of 2021, the abortion rate was 28.6 per 1,000 women among Black women, compared to 12.3 per 1,000 among Hispanic women, and 6.4 per 1,000 among White women (Figure 1). Data for other racial and ethnic groups were not available. The vast majority of abortions across racial and ethnic groups are in the first trimester . Approximately eight in ten abortions among White (82%), Hispanic (82%), and Black women (80%) occur by nine weeks of pregnancy. While data on the number of abortions post- Dobbs has been released by both the #WeCount project from the Society for Family Planning and the Guttmacher Institute’s Monthly Abortion Provision Study , neither sets of data have reported demographic characteristics of abortion patients.

There are many reasons why abortion rates are higher among some women of color . As discussed below, Black, Hispanic, American Indian and Alaska Native (AIAN), and Native Hawaiian or Pacific Islander (NHPI) women have more limited access to health care, which affects their access to contraception and other sexual health services that are important for pregnancy planning. Data show that contraception use is higher among White women (69%) compared to Black (61%) and Hispanic (61%) women. Some women of color live in areas with more limited access to comprehensive contraceptive options. In addition, the health care system has a long history of racist practices targeting the sexual and reproductive health of people of color, including forced sterilization, medical experimentation, the systematic reduction of midwifery, just to name a few . Many women of color also report discrimination by providers, with reports of dismissive treatment, assumption of stereotypes, and inattention to conditions that take a disproportionate toll on women of color and certain conditions, such as uterine fibroids . These factors have contributed to medical mistrust, which some women cite as a reason that they may not access contraception. In addition, inequities across broader social and economic factors — such as income, housing, safety and education—that drive health, often referred to as social determinants of health, affect decisions related to family planning and reproductive health.

How Do State Abortion Policies Vary Across Racial and Ethnic Groups?

Overall, 16.3 million or 25% of women ages 18-49 in the US live in one of the 14 states where abortion is banned, and another 16.9 million, or 26%, live in one of the 11 states with gestational limits between 6 and 22 weeks LMP. The remaining 32.8 million, or roughly 50%, live in states that provide broader access to abortions.

White, Black, and American Indian and Alaska Native women account for larger shares of women ages 18-49 in states that have banned or limited abortion access compared to states that provide broader access to abortion . Most of the states that have banned or restricted abortion are in the South, where more than half of the Black population and roughly a third of the White (36%) and AIAN (31%) population reside. In contrast, Hispanic and Asian women make up larger shares of women ages 18-49 in states that provide broader access to abortion compared to states with abortion bans or limits. (See Appendix Table B for the racial and ethnic distribution of women ages 18-49 by state).

Six in ten of Black (60%) and AIAN (59%) women ages 18-49 live in states with abortion bans or restrictions (Figure 3) . Just over half (53%) of White women ages 18-49 live in states with bans or restrictions, while less than half of Hispanic (45%) and about three in ten Asian (28%) and NHPI (29%) women ages 18-49 live in these states. Of note, in April 2024, the Arizona State Supreme Court upheld a Civil War era law banning nearly all abortions in the state. While that law is not currently in effect, if it were to go into effect in the future, the share of AIAN women living in a state with an abortion ban would rise from about three in ten (31%) to about four in ten (41%), and the share of Hispanic women living in a state with an abortion ban would increase from 24% to 28%.

How do potential barriers to accessing abortions vary by race and ethnicity?

Variation in abortion policies by state due to the Dobbs decision will likely result in women of color facing disproportionate access barriers since they face underlying disparities in health coverage and have more limited financial resources that may make it challenging to obtain an abortion out-of-state or via telehealth.

Health Coverage

Lack of health insurance limits women’s access to a broad range of health services, including contraception and pregnancy care, and leaves them at risk for significant out of pocket expenses for care. However, having coverage does not guarantee that it includes abortion benefits. In general coverage of abortion is more limited than for many other common health services. Some states prohibit coverage of abortion in state-regulated private insurance plans, and federal law bars the use of federal dollars for abortion, including in Medicaid, the national health coverage program for low-income individuals.

AIAN, Hispanic, NHPI, and Black women between ages 18-49 have higher uninsured rates compared to their White counterparts . Among women in this age group, roughly a fifth of AIAN (22%) and Hispanic (21%) women are uninsured as are 14% of NHPI women and 11% of Black women. In contrast, less than one in ten (7%) of White women lack insurance (Figure 4). These differences in uninsured rates are driven by lower rates of private coverage among these groups. Medicaid coverage helps to narrow these differences but does not fully offset them.

Across racial and ethnic groups, uninsured rates for women ages 18-49 in states that have banned or limited abortion are higher than rates in states where abortion is available beyond 22 weeks . Overall, 16% of women ages 18-49 in states that have banned abortion are uninsured compared to 12% in states that have gestational limits on abortions less than 22 weeks and 8% in states that have broader access to abortions. Uninsured rates for women ages 18-49 are at least twice as high in states that banned abortion compared to those in states with broader access for White (10% vs. 5%), Hispanic (33% vs. 15%), Black (14% vs. 7%), and Asian (10% vs. 5%) women, and nearly three times higher for NHPI women (29% vs. 10%) (Figure 5). However, even in states where abortion is not banned, many women do not have coverage, and uninsured rates remain higher for AIAN, Hispanic, and NHPI women compared to White women.

AIAN, Black, NHPI, and Hispanic women are more likely than their White counterparts to be covered by Medicaid, which provides limited coverage for abortions . For decades, the Hyde Amendment has prohibited the use of federal funds for coverage of abortion under Medicaid, except in cases of rape, incest, or life endangerment for the pregnant person. States can choose to use state funds to pay for abortions under Medicaid in other instances. However, among the 36 states that do not ban abortion, 17 use state funds to pay for abortions beyond the Hyde limitations for Medicaid enrollees. The other 19 states and DC continue to follow the Hyde limits, meaning women in these states covered by Medicaid likely must pay out of pocket for an abortion unless they meet the narrow circumstances of the Hyde Amendment.

Social and Economic Access Barriers

Women of color have more limited financial resources and transportation options than White women, making it more difficult for them to travel out-of-state for an abortion. The median self-pay cost of obtaining an abortion exceeded $500 in 2021, but costs can vary depending on the type of abortion, location, and if an individual has coverage. Traveling out of state raises the cost of abortion due to added costs for transportation, accommodation, and childcare. Moreover, it may result in more missed work, meaning greater loss of pay. Data suggest that women of color would have more difficulty than White women affording these increased costs and may face other barriers that could prevent them from traveling to obtain an abortion and instead turning to self-managed abortions or continuing the pregnancies.

Overall, AIAN (48%), Black (43%), NHPI (41%) and Hispanic (40%) women ages 18-49 are nearly twice as likely as their White counterparts (24%) to have low incomes (below 200% of the federal poverty level or $46,060 for a family of three as of 2022) (Figure 6) . Moreover, across most racial and ethnic groups, women in states that have banned abortion are more likely to have low incomes than women in states that allow abortions beyond 22 weeks. For example, 48% of NHPI women in states that have banned abortion have low incomes compared to 38% of NHPI women in states where abortion is available after 22 weeks gestation. (See Appendix Table C for state-level data on the share of women who are low-income by race and ethnicity.)

Over half of Hispanic (57%) and Black women (58%) ages 18-49 could not cover an emergency expense of at least $500 using their current savings compared to 36% of White women in this age group (Figure 7) . (Data for this measure were not available for other racial groups.) Women who have fewer resources for an emergency expense may be more likely to seek assistance from an abortion fund , which help cover the costs of abortions for people who cannot afford them. However, abortion funds are not able to keep up with the demand and support all those seeking assistance.

Black women ages 18-49 are more likely than their White counterparts to live in a household without access to a vehicle (12% vs. 4%), and Asian and AIAN women in this age group are more likely than White women to lack vehicle access (9% and 8%, respectively, vs. 4%) (Figure 8) . Hispanic and NHPI women are also more likely than White women to lack vehicle access, although the difference is smaller (6% and 6%, respectively, vs 4%). Research shows that out-of-state travel for abortion care has risen significantly since Dobbs, but women without vehicle access may face greater challenges to traveling out of state.

Immigration-related fears make some women reluctant to travel out of state for an abortion . Among women ages 18-49, about one-third of Asian women (33%) and roughly a quarter of Hispanic (24%) and NHPI (22%) women are noncitizens, who include lawfully present and undocumented immigrants (Figure 9). Many citizen women may also live in mixed immigration status families, which may include noncitizen family members. Noncitizen women and those living in mixed immigration status families may fear that traveling out of state could put them or a family member at risk for negative impacts on their immigration status or detention or deportation, especially in states that have moved to criminalize abortions. For example, some states have enacted laws that make it illegal to “ aid or abet ” someone in obtaining an abortion while some are trying to make it illegal to take a minor across state lines to obtain an abortion.

Differences in language barriers and access to technology may also contribute to racial disparities in abortion access . Roughly a quarter of Hispanic (26%) and Asian (25%) women ages 18-49 speak English “less than very well,” as do one in ten NHPI women (10%) compared to just 1% of White women (Figure 10). This can affect their ability to find information about abortions and locate a clinic that offers abortion services. In a national KFF survey of women conducted just before the Dobbs ruling, nearly three in ten Hispanic women (29%) said if they needed an abortion, they did not know where to go or find the information, higher than other groups. Internet access is another important factor for finding information about abortion care and also for telehealth appointments, which comprise a growing share of abortion care. Among women ages 18-49, 8% of AIAN and 6% of NHPI (6%) women live in a household without internet access, compared to 2% of White women (Figure 10).

What are the Potential Implications of Abortion Restrictions on Racial Disparities in Health, Finances, and Criminal Penalties?

Stark racial disparities in maternal and infant health predate the Dobbs decision but may widen due to the new restrictions on abortions since abortion services can be a key factor in managing pregnancy complications and emergencies that can lead to poor outcomes. Data suggest that the abortion restrictions may also contribute to growing provider shortages in some areas, which may increase access challenges and have negative impacts on health. Moreover, abortion restrictions may have negative economic consequences on families and put people at increased risk for criminalization.

Maternal Health

Prior to the Dobbs ruling there were already significant racial disparities in pregnancy-related and infant mortality, which may widen due to abortion restrictions . NHPI, Black and AIAN people are more likely to die while pregnant or within a year of the end of pregnancy compared to White people (62.8, 39.9 and 32.0 per 100,000 births vs. 14.1 per 100,000 births) (Figure 11). Restrictions on access to abortions limit options to terminate pregnancies for medical reasons. While all state bans have some limited exceptions to preserve the life of pregnant women, the language of these exceptions is vague and narrow, and far fewer have health exceptions. This means that some people have been forced to remain pregnant even when the pregnancy is threatening their health , which could further widen disparities. One study estimated that a total abortion ban in the U.S. would increase the number of pregnancy-related deaths by 21% for all women and 33% among Black women.

There also are racial disparities in certain birth risks and adverse birth outcomes which may be exacerbated by the abortion restrictions . Specifically, as of 2022, higher shares of births to Hispanic, Black, AIAN and NHPI people were among those who received late or no prenatal care, or were preterm, or low birthweight, compared to White people (Figure 12). Timely prenatal care is particularly important for people with higher-risk pregnancies, yet research suggests that restrictive abortion policies may be causing people to start prenatal care later in pregnancy, which is already a concern for women of color who are more likely to experience delays in prenatal care initiation. Births among Asian people were also more likely to be low birthweight than those of White people. Moreover, while the birth rate among teens has been declining over time for all groups, the rate for Black, Hispanic, AIAN, and NHPI teens was over two times higher than the rate among White and Asian teens in 2021 (Figure 13). Research has also found that state-level abortion restrictions that were in place prior to Dobbs were associated with disproportionately higher rates of adverse birth outcomes, including preterm birth, for Black individuals, and that inequities widened as states became more restrictive.

Abortion bans and restrictions limit care for people experiencing a pregnancy loss, which some groups of women of color are at higher risk of experiencing compared to their White counterparts . Pregnancy loss, which includes miscarriage and stillbirth, is common , occurring in up to an estimated 20% of all pregnancies. Data on racial and ethnic disparities in miscarriage is limited, but research shows that the rates of fetal mortality (fetal demise following 20 weeks of gestation) are higher among Black, AIAN, and NHPI women compared to White women (Figure 14). While some miscarriages, particularly earlier in pregnancy, pass without any medical intervention, some people seek medical care to complete a miscarriage and/or because their health may worsen with the continuation of an unviable pregnancy. Almost all medications and procedures used to manage miscarriages and stillbirths are identical to those used in abortions. As a result, clinicians may hesitate to provide care even when medically indicated because of concerns they could be conflated with providing an abortion and therefore risk criminalization or penalties as a result. Since the Dobbs ruling, there have been several high-profile cases of people experiencing pregnancy losses who could not obtain timely miscarriage care due to state abortion bans, jeopardizing their health as a result. In KFF’s national survey of OBGYNs after the Dobbs decision, more than half (55%) of OBGYNs practicing in states where abortion is banned said their ability to practice within the standard of care has worsened since Dobbs .

In states where abortion is banned or severely restricted, the number of women forced to continue a pregnancy is likely to rise, with data suggesting disproportionate increases among women of color . While it is relatively early to see the impact of the Dobbs ruling on births, initial research suggests that birth rates could increase as a result. One study to date has estimated that there have been approximately 32,000 “ additional ” births as a result of the ruling, primarily concentrated in states that have banned abortions and with a disproportionate effect among people of color. A study in Texas , which had implemented a ban on abortions after six weeks gestation starting September 2021 (prior to Dobbs ), found a 2% rise in the state’s fertility rate after the law’s implementation, with the sharpest increase among Hispanic women (8%).

Provider Access and Shortages

The Dobbs decision may exacerbate health care workforce shortages, particularly among clinicians providing obstetric and gynecologic care . State-level abortion bans criminalize clinicians who provide abortion care, and this has cascading effects on other aspects of maternity care. Even prior to Dobbs , there were concerns about workforce shortages in maternity care. The estimates that more than 5 million women of reproductive age in the U.S. live in counties that have few or no obstetric providers, with the largest gaps in rural communities as well as areas with higher rates of poverty, and larger shares of Black women. Many of these areas are in states with abortion bans and gestational restrictions, and there are reports of clinicians leaving these states because they are prohibited from and criminalized for offering the full scope of services they trained for and that comport with medical standards. Abortion restrictions may also affect the pipeline of new clinicians. A few studies to date, have found declines in US medical school graduates applying to OBGYN residency positions in states with abortion bans. While all positions were filled and the changes to date have been relatively small, they could suggest that future clinicians may prefer not to practice in states that ban abortion, potentially widening existing gaps in workforce capacity.

Many OBGYNs say that the Dobbs decision has had a negative impact on racial and ethnic inequities and the broader field of maternity care . In a national KFF survey , seven in ten OBGYNs say that since the Dobbs decision, racial and ethnic inequities in maternal health (70%) as well as management of pregnancy-related medical emergencies (68%) have gotten worse. Over half think that the ability to attract new OBGYNs to the profession has worsened (55%) and 64% think the same about pregnancy-related mortality (Figure 15).

Economic Circumstances

Denying women access to abortion services has negative economic consequences . Many women who are not able to obtain abortions will have children that they hadn’t planned for and face the associated costs of raising a child. In addition to the direct costs, lack of abortion access can affect women’s longer-term educational and career opportunities. Research from the Turnaway Study , which examined the impact of an unwanted pregnancy on women’s lives, found a range of negative economic effects of abortion denials, including higher poverty rates, financial debt , and poorer credit scores among women who were not able to obtain abortions compared to women who received abortions. The study also found negative socioeconomic impacts for the children born to women who were denied abortions, which may exacerbate existing racial disparities in income. Poverty rates are already much higher among children of color than White children, and research shows children in families with lower incomes experience negative long-term outcomes, including lower earnings and income, increased use of public assistance, greater likelihood of committing crimes, and more health problems.

Criminalization

People of color may be at increased risk for criminalization in the post- Roe environment . A long history of racism in judicial policy in this country has led to disproportionately higher rates of criminalization among people of color and is likely to grow as abortion care is criminalized. Prior to the Dobbs ruling, there were already cases of women criminalized for their own miscarriages, stillbirths, or infant death, due in part to the establishment of laws that protect and prioritize “ fetal personhood .” The women charged were disproportionately women with lower incomes, Black women, and women living in southern states that have subsequently banned or greatly restricted abortion access. None of the state-level abortion bans specifically criminalize women for getting an abortion, but fetal personhood laws can conflate miscarriage and abortion. For example, in one high-profile case, Brittany Watts is an Ohio woman who faced criminal charges after she had a miscarriage at home in Fall 2023. While Ms. Watts sought medical care, other pregnant people experiencing a miscarriage or other complications may be deterred from seeking care, since treatment could be conflated with an abortion, putting their own health at risk as a result. Furthermore, many accusations of fetal harm are initiated by health care providers . State laws that penalize people who aid and abet abortion access and those that grant fetal personhood can perpetuate the culture of criminalizing pregnancy, particularly among communities of color.

• Women's Health Policy
• Racial Equity and Health Policy
• Race/Ethnicity

Also of Interest

• Key Facts on Abortion in the United States
• Abortions Later in Pregnancy in a Post-Dobbs Era
• The Hyde Amendment and Coverage for Abortion Services Under Medicaid in the Post-Roe Era
• Abortion in the United States Dashboard

Here’s How Data Can Help Unlock Education Equity

Tc’s renzhe yu, alex bowers, and youmi suk break down their ongoing, different approaches to the same goal: high quality education for all.

Now more than ever, educational equity — ensuring all students have access to meaningful educational opportunities, from college preparation and career assistance to support resources to civic participation — is crucial across America. However, the journey towards educational equity demands a multifaceted approach, with cross-collaboration and data at the helm. That’s where a core aspect of TC’s educator preparation and overall ethos comes into play, seeking to narrow the opportunity gaps millions of U.S. students face. 

While The Center for Educational Equity , established in 2005, focuses on research and policy around fair school funding and civic participation, three TC faculty members are finding unique ways to leverage data for equity. Renzhe Yu , Assistant Professor of Learning Analytics and Educational Data Mining, is leveraging data analytics to uncover the unintended consequences of the rapid adoption of generative artificial intelligence. Alex Bowers , Professor of Education Leadership, is showcasing the power of learning analytics and interoperable data sets to identify and address critical indicators of equity. Youmi Suk , Assistant Professor of Applied Statistics, is harnessing big educational data and cutting-edge machine learning methods to address questions about equity and fairness in educational practice.

Renzhe Yu, Assistant Professor of Learning Analytics and Educational Data Mining; Alex Bowers, Professor of Education Leadership; Youmi Suk, Assistant Professor of Applied Statistics (Photo: TC Archives)

• To reveal the bias and unintended consequences of generative artificial intelligence , Renzhe Yu performs large-scale data analytics.
• In order to identify issues of equity in a transparent way, Alex Bowers utilizes learning analytics and public data.
• Working to improve test fairness and curriculum planning , Youmi Suk draws connections between psychometrics, causal inference and algorithmic fairness.

(Image: iStock)

How Data Analytics Can Address the Growing Digital Divides

Stemming from Yu’s interest in learning how to “equip ourselves to better address existing issues related to education inequity,” his most pressing research focuses on understanding how the mass adoption of generative artificial intelligence has exacerbated digital divides in schools and institutions. Explored in a forthcoming working paper, the project uses large-scale text data from the education system to examine differences in everyday teaching and learning experiences as well as institutional attitudes toward generative AI.

“There are students who are more tech-savvy, there are instructors who are more experienced in using technologies, there are institutions that are more open-minded…and they have probably taken good advantage of ChatGPT and other generative AI tools in the past year,” explains Yu. But there’s also a significant number of students, parents, instructors, and institutions that don’t have that kind of access or awareness. “Although it’s just one year, the emergence of this technology may have widened these gaps,” says Yu.

To explore this growing divide, Yu and his research team focused on real-world data sources instead of conducting lab-controlled experiments in order to see how these relationships are playing out in real life. Because of his familiarity with the tech industry and the still-common impulse to innovate without considering the way that entire populations can be left behind, Yu says, “it’s really important to identify these unintended consequences in the early phase of life for these technologies.”

Yu’s other research interest in algorithmic bias — where he has long been exploring how algorithms used for decision making are treating learners differently based on race or other socio-demographic markers — is also made more urgent by the emergence of generative AI tools because if biased algorithms are “having dynamic conversations with students, [as is the case with generative AI,] the negative consequences of any bias in the process would be even more concerning.”

Ultimately, Yu hopes that his work provides perspective that is often ignored in the innovation process in order to create an education system that achieves equity with the help of advanced technology. 

How Data Can Inform Equity Efforts in School Policy and Conversation

Meanwhile, Bowers is looking at new ways school leaders can use reliable, evidence-based data practices to support equity efforts in schools nationwide. “One of my goals is to help bring communities together around the data that already exists for them—that’s already available, and help empower those communities,” he explains.

His recent work focuses on building collaboration with urban schools to identify data-driven equity practices and outcomes in education. In using a multidimensional framework, Bowers is hoping to facilitate more meaningful discussions with school communities by moving away from stigmatizing variables like standardized test scores and graduation rates.

“I think school districts are excited to have a definition of equity that they can bring into these community conversations, both with the school board, but also with teachers, parents, students.”

The project is fueled by his earlier research , which explores the value of interoperable, equitable datasets, along with a report that he co-authored with the National Association of Elementary School Principals (NAESP). The comprehensive report details the 16 indicators for assessing equity in education, including academic outcomes like test scores, graduation rates, behavioral data, and opportunities such as student engagement, access to quality learning, pre-K experiences, and more.These indicators give administrators and teachers a more transparent lens to examine school performance.

“It can help us move into a framework of, "How are we serving our students?" "Are we serving our communities?" It's moving away from fixating on the gaps and the outcomes and [instead] trying to problem solve as a collaborative opportunity through which we can bring in existing data.”

How Interdisciplinary Approaches to Analyzing Data Can Promote Fairness

For clearer reading.

Causal Inference: An interdisciplinary subfield that determines the cause of an observed effect by considering assumptions, design and estimation strategies.

Psychometrics: A subfield of psychology centered on theories and applications of measurement, assessment and testing.

A leading researcher exploring test accommodation effectiveness, Suk takes a multi-pronged approach to her main research goal of “developing and applying quantitative methods to address practical and important problems in the educational, social, and behavioral sciences.” One of her central projects is forging a connection between test fairness, a field of study that has been developed over 60 years, and algorithmic fairness, an emerging field with high stakes as algorithmic models are utilized in all aspects of life. 

“We can leverage the people, the methods and the concepts developed in test fairness in order to facilitate understanding of algorithmic fairness,” says Suk who is incorporating psychometrics and causal inference concepts into her work. “And it can go both ways. If there's any new discussion happening around algorithm fairness, we can leverage that discussion to make assessments and tests fairer.” As a part of this work, Suk is crafting new frameworks to investigate test fairness on the individual level instead of on the group level, based on the discussions on individual fairness within the algorithmic fairness research.

Her work is also directly informing her recent research on fair and personalized math curriculum recommendations for high school students, funded by the National Science Foundation. It’s known that students get the most benefit from personalized recommendations but “we have to be aware there may be some unconscious bias [in the recommendations],” explains Suk. To address this, Suk is applying algorithmic fairness constraints to create more equitable recommendations for high school students.

Through her varied research, Suk ultimately hopes to “create equitable and fair testing environments for all students and personalized curriculum plans that empower every student to succeed.”

— Sherri Gardner and Jaqueline Teschon

Tags: Evaluation & Learning Analytics Bias Education Leadership Evaluation & Learning Analytics

Programs: Applied Statistics Cognitive Science in Education Education Leadership Learning Analytics Measurement and Evaluation

Departments: Human Development Organization & Leadership

Published Monday, Apr 22, 2024

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What Is Fundamental Analysis?

• How It Works
• Fundamental vs. Technical Analysis
• Quantitative vs. Qualitative
• Qualitative Fundamentals
• Quantitative Fundamentals

Example of Fundamental Analysis

• Fundamental Analysis FAQs

The Bottom Line

• Fundamental Analysis

Fundamental Analysis: Principles, Types, and How to Use It

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Fundamental analysis (FA) measures a security's intrinsic value by examining related economic and financial factors. Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions.

Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management.

The end goal is to determine a number that an investor can compare with a security's current price to see whether the security is undervalued or overvalued by other investors.

Key Takeaways

• Fundamental analysis is a method of determining a stock's real or "fair market" value.
• Fundamental analysts search for stocks currently trading at prices higher or lower than their real value.
• If the fair market value is higher than the market price, the stock is deemed undervalued, and a buy recommendation is given.
• If the fair market value is lower than the market price, the stock is deemed overvalued, and the recommendation might be not to buy or to sell if the stock is held.
• In contrast, technical analysts favor studying the historical price trends of the stock to predict short-term future trends.

Investopedia / Paige McLaughlin

Understanding Fundamental Analysis

Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not correctly priced by the market.

Analysts typically study, in order:

• The overall state of the economy
• The strength of the specific industry
• The financial performance of the company issuing the stock

This ensures they arrive at a fair market value for the stock.

Sources for Fundamental Analysis

Fundamental analysis uses publicly available financial data to evaluate the value of an investment. The data is recorded on financial statements such as quarterly and annual reports and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative because public companies must file it any time a reportable event occurs, like an acquisition or upper-level management change.

Most public—and many private—companies list annual reports on the investor relation sections of their websites, highlighting financial decisions made and results achieved throughout the year.

For example, you might perform a fundamental analysis of a bond's value by looking at economic factors such as interest rates and the overall state of the economy. Then, you'd evaluate the bond market and use financial data from similar bond issuers. Finally, you'd analyze the financial data from the issuing company, including external factors such as potential changes in its credit rating . You could also read through the 8-K, 10-Q, 10-K, and the issuer's annual reports to find out what they are doing, their goals, or other issues.

Fundamental analysis uses a company's revenues, earnings, future growth, return on equity , profit margins, and other data to determine a company's underlying value and potential for future growth.

Intrinsic Value

One of the primary assumptions behind fundamental analysis is that a stock's current price often does not fully reflect the value of the company when compared to publicly available financial data. A second assumption is that the value reflected from the company's fundamental data is more likely to be closer to the true value of the stock.

Intrinsic value means something different in stock valuation than in options trading. Option pricing uses a standard calculation for intrinsic value, while it can be calculated in many different ways for a stock.

For example, say that a company's stock was trading at $20, and after extensive research on the company, an analyst determines that it ought to be worth $24. Another analyst does equal research but decides it should be worth $26.

Many investors will consider the average of these estimates and assume that the stock's intrinsic value may be near $25. Often investors consider these estimates highly relevant because they want to buy stocks trading at prices significantly below these intrinsic values.

This leads to a third major assumption of fundamental analysis: In the long run, the stock market will reflect the fundamentals. The problem is, no one knows how long "the long run" really is. It could be days or years.

This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and find opportunities to buy at a discount or sell at a premium. The investment will pay off when the market catches up to the fundamentals.

Fundamental analysis is used most often for stocks, but it is useful for evaluating any security, from a bond to a derivative. If you consider the fundamentals, from the broader economy to the company details, you are doing a fundamental analysis.

Fundamental Analysis vs. Technical Analysis

This method of analysis starkly contrasts with technical analysis, which attempts to forecast price direction through analyzing historical market data such as price and volume. Technical analysis uses price trends and price action to create indicators. Some of the indicators create patterns that have names resembling their shapes, such as the head and shoulders pattern. Others use trend, support, and resistance lines to demonstrate how traders view investments and indicate what will happen. Some examples are the symmetrical triangle or the wedge.

Fundamental analysis relies on financial information reported by the company whose stock is being analyzed. Ratios and metrics are created using the data which indicate how a company is performing compared to similar companies.

Quantitative and Qualitative Fundamental Analysis

The problem with defining the word fundamentals is that it can cover anything related to the economic well-being of a company. They include numbers like revenue and profit, but they can also include anything from a company's market share to the quality of its management.

The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn't much different from well-known definitions:

• Quantitative : information that can be shown using numbers, figures, ratios, or formulas
• Qualitative : rather than a quantity of something, it is its quality, standard, or nature

In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business. That's why the biggest source of quantitative data is financial statements. Revenue, profit, assets, and more can be accurately measured.

The qualitative fundamentals are less tangible. They might include the quality of a company's key executives, brand-name recognition, patents , and proprietary technology .

Neither qualitative nor quantitative analysis is inherently better. Many analysts consider them together.

Qualitative Fundamentals to Consider

There are four key fundamentals that analysts always consider when regarding a company. All are qualitative rather than quantitative. They include:

The Business Model

What exactly does the company do? This isn't as straightforward as it seems. If a company's business model is based on selling fast-food chicken, is it making its money that way? Or is it just coasting on royalty and franchise fees?

Competitive Advantage

A company's long-term success is primarily driven by its ability to maintain a competitive advantage—and keep it. Powerful competitive advantages, such as Coca-Cola's brand name and Microsoft's domination of the personal computer operating system, create a moat around a business allowing it to keep competitors at bay and enjoy growth and profits. When a company can achieve a competitive advantage, its shareholders can be well rewarded for decades.

Some believe management is the most important criterion for investing in a company. It makes sense: Even the best business model is doomed if the company's leaders fail to execute the plan properly. While it's hard for retail investors to meet and truly evaluate managers, you can look at the corporate website and check the resumes of the top brass and the board members. How well did they perform in previous jobs? Have they been unloading a lot of their stock shares lately?

Corporate Governance

Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors, and stakeholders . These policies are defined and determined in the company charter , its bylaws, and corporate laws and regulations. You want to do business with a company that is run ethically, fairly, transparently, and efficiently. Particularly note whether management respects shareholder rights and shareholder interests. Make sure their communications to shareholders are transparent, clear, and understandable. If you don't get it, it's probably because they don't want you to.

It's also important to consider a company's industry: its customer base, market share among firms, industry-wide growth, competition, regulation, and business cycles. Learning how the industry works will give an investor a deeper understanding of a company's financial health.

Quantitative Fundamentals to Consider: Financial Statements

Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use quantitative information from financial statements to make investment decisions. The three most important financial statements are income statements , balance sheets , and cash flow statements .

The Balance Sheet

The balance sheet represents a record of a company's assets, liabilities, and equity at a particular point in time. It is called a balance sheet because the three sections—assets, liabilities, and shareholders' equity—must balance using the formula:

Assets = Liabilities + Shareholders' Equity

Assets represent the resources the business owns or controls at a given time. This includes items such as cash, inventory, machinery, and buildings. The other side of the equation represents the total financing value the company has used to acquire those assets.

Financing comes as a result of liabilities or equity . Liabilities represent debts or obligations that must be paid. In contrast, equity represents the total value of money that the owners have contributed to the business—including retained earnings, which is the profit left after paying all current obligations, dividends, and taxes.

The Income Statement

While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually.

The income statement presents revenues, expenses, and profit generated from the business' operations for that period.

Statement of Cash Flows

The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities:

• Cash from investing (CFI) : Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment, or long-term assets
• Cash from financing (CFF) : Cash paid or received from the issuing and borrowing of funds
• Operating Cash Flow (OCF) : Cash generated from day-to-day business operations

The cash flow statement is important because it's challenging for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason, some investors use the cash flow statement as a more conservative measure of a company's performance.

Fundamental analysis relies on using financial ratios drawn from data on corporate financial statements to make inferences about a company's value and prospects.

The Coca-Cola Company is a prime example that can be used in fundamental analysis. To begin, an analyst would examine the economy using some published metrics:

• Consumer price index (inflation measure)
• Gross domestic product growth
• Exports/imports
• Purchasing manager's index
• Interest rates

Then, the sector and industry would be examined using statistics and metrics from various reports and competitor companies. Lastly, the analysts would gather the reports from Coca-Cola or the Security and Exchange Commission's Edgar filings database.

Analysts might also use data gathered by another firm, such as CSIMarket. CSIMarket provides fundamental analysis data for investors, so you could begin by assessing the value of Coca-Cola's assets, income streams, debts, and liabilities. You might find comparisons of objective metrics such as revenue, profits, and growth, especially in the context of the broader beverage industry.

Using CSIMarket's analysis, the analyst could compare growth rates to the industry and sector Coca-Cola operates in, along with the other information provided, to see if the company is valued correctly. For example, as of August 2022, for the trailing twelve months (TTM), Coca-Cola had (using only a few of the possible ratios and metrics):

One factor not shown in an analysis of ratios and numbers is how long a company has been around and the conditions they have weathered. Coca-Cola was founded in 1892 in Atlanta, Georgia. It has stayed in business through several wars, depressions, recessions, epidemics, pandemics, stock market crashes, and a global financial crisis. Not many companies can claim a history like that.

Additionally, a company's brand can add value to an investment. Coca-Cola has been providing beverages for a long time, and its logo is recognized worldwide.

So, an analyst can combine brand, longevity, growth above that of the beverages manufacturing industry, an above average price-to-earnings ratio, and good return on investment.

Coca-Cola has more debt than equity, but it also generates more returns using its assets than the rest of the industry. The company doesn't have as much liquidity as other companies, but it seems the industry hovers on pretty low quick ratios. More than 1.0 means a company can pay its short-term obligations quickly—so in general, most of the industry is low, but Coca-Cola has more than $1 billion in net cash flows, which gives it a lot of wriggle room.

An interesting measurement is how much revenue one employee generates. Coca-Cola employees generate about twice as much revenue as employees for comparative companies. This might warrant a deeper investigation into what Coca-Cola is doing differently. They may have invested in new technology or have much more efficient systems. Looking over press releases and reading company reports can provide insights into what the company is doing. It might also be that Coca-Cola simply sells more products than its competitors, so it's important to review any reports and releases and conduct a fundamental analysis carefully.

What Is Fundamental Analysis and Its Objective?

Fundamental analysis uses publicly available financial information and reports to determine whether a stock and the issuing company are valued correctly by the market.

What Are the Types of Fundamental Analysis?

There are two types of fundamental analysis, qualitative and quantitative.

What Are the 3 Layers of Fundamental Analysis?

When conducting an analysis, you start with economic analysis, then analyze the industry, then the company.

Why Is Fundamental Analysis Important?

Fundamental analysis allows you to see what the market value for a company should be. Many investors only look at the price a stock is currently trading at and what it has traded at instead of analyzing what lies behind the stock. A stock is issued by a company, so its overall performance is related to the financial performance of the company.

What Are the Tools for Fundamental Analysis?

Analysts use many tools. Some examples are financial reports, ratios from the reports, spreadsheets, charts, graphs, infographics, government agency reports on industries and the economy, and market reports.

Fundamental analysis is a valuation tool used by stock analysts to determine whether a stock is over- or undervalued by the market. It considers the economic, market, industry, and sector conditions a company operates in and its financial performance.

Financial ratios generated from financial reports and government industry and economic reports are used to valuate a company. Not every analyst uses the same tools or views stocks similarly—you might determine a stock is valued differently than another analyst. What's important is that the stock you analyze meets your criteria for value and that your analysis creates actionable information for you.

Securities and Exchange Commission. " EDGAR | Company Filings ."

CSIMarket. " Coca-Cola Co (KO) ." Use the dropdown menu titled "Select the Comparisons:" and choose different measurements.

Coca-Cola. " History ."

CSIMarket. " Coca Cola Co's Net Cash Flow Margin by Quarter ."

• Valuing a Company: Business Valuation Defined With 6 Methods 1 of 37
• What Is Valuation? 2 of 37
• Valuation Analysis: Meaning, Examples and Use Cases 3 of 37
• Financial Statements: List of Types and How to Read Them 4 of 37
• Balance Sheet: Explanation, Components, and Examples 5 of 37
• Cash Flow Statement: How to Read and Understand It 6 of 37
• 6 Basic Financial Ratios and What They Reveal 7 of 37
• 5 Must-Have Metrics for Value Investors 8 of 37
• Earnings Per Share (EPS): What It Means and How to Calculate It 9 of 37
• P/E Ratio Definition: Price-to-Earnings Ratio Formula and Examples 10 of 37
• Price-to-Book (PB) Ratio: Meaning, Formula, and Example 11 of 37
• Price/Earnings-to-Growth (PEG) Ratio: What It Is and the Formula 12 of 37
• Fundamental Analysis: Principles, Types, and How to Use It 13 of 37
• Absolute Value: Definition, Calculation Methods, Example 14 of 37
• Relative Valuation Model: Definition, Steps, and Types of Models 15 of 37
• Intrinsic Value of a Stock: What It Is and Formulas to Calculate It 16 of 37
• Intrinsic Value vs. Current Market Value: What's the Difference? 17 of 37
• The Comparables Approach to Equity Valuation 18 of 37
• The 4 Basic Elements of Stock Value 19 of 37
• How to Become Your Own Stock Analyst 20 of 37
• Due Diligence in 10 Easy Steps 21 of 37
• Determining the Value of a Preferred Stock 22 of 37
• Qualitative Analysis 23 of 37
• How to Choose the Best Stock Valuation Method 24 of 37
• Bottom-Up Investing: Definition, Example, Vs. Top-Down 25 of 37
• Financial Ratio Analysis: Definition, Types, Examples, and How to Use 26 of 37
• What Book Value Means to Investors 27 of 37
• Liquidation Value: Definition, What's Excluded, and Example 28 of 37
• Market Capitalization: What It Means for Investors 29 of 37
• Discounted Cash Flow (DCF) Explained With Formula and Examples 30 of 37
• Enterprise Value (EV) Formula and What It Means 31 of 37
• How to Use Enterprise Value to Compare Companies 32 of 37
• How to Analyze Corporate Profit Margins 33 of 37
• Return on Equity (ROE) Calculation and What It Means 34 of 37
• Decoding DuPont Analysis 35 of 37
• How to Value Private Companies 36 of 37
• Valuing Startup Ventures 37 of 37

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A look at small businesses in the U.S.

Most U.S. adults (86%) say small businesses have a positive effect on the way things are going in the country these days, according to a recent Pew Research Center survey . Small businesses, in fact, receive by far the most positive reviews of any of the nine U.S. institutions we asked about, outranking even the military and churches.

Despite their name, small businesses loom large in the United States. These businesses – defined here as those with 500 employees or fewer – account for 99.9% of U.S. firms, according to the Small Business Administration . While most of these 33 million firms don’t have paid employees, about 6 million of them do . They account for just under half of total private sector employment (46%).

As National Small Business Week approaches, here’s a look at small businesses in the U.S. and public attitudes about them, based on federal data and Center surveys.

Pew Research Center conducted this analysis to provide a glimpse into the state of American small businesses ahead of National Small Business Week .

In this analysis, “small businesses” are defined as employer firms with fewer than 500 workers. The analysis relies primarily on data from several Census Bureau sources: the Annual Business Survey (ABS), the Business Dynamics Statistics (BDS), and the Business Formation Statistics (BFS).

The ABS – conducted annually since 2017 – includes all non-farm U.S. firms with paid employees and receipts of $1,000 or more. Majority business ownership is characterized in the survey as having 51% or more of the stock or equity in the firm. The Census Bureau counts multiracial firm owners under all racial categories they identify with; Hispanic firm owners may be of any race. Read more about the  ABS methodology .

Data on the age of small business comes from the BDS. Data on the annual number of high-propensity business applications in the United States is based on the number of Employer Identification Number applications used for tax purposes and is not seasonally adjusted. Read more about the BFS methodology . Per capita calculations use state-level resident population data from the Census Bureau; estimates are as of July 1, 2023.

This analysis also draws on findings from recent Center surveys. More information on the methodology for these surveys can be found by following the links in the text.

There’s no single way to define a “small business.” Economists sometimes use the size of the establishment or firm, or turn to industry-specific size standards based on average revenue. For this analysis, we’ve used the U.S. Small Business Administration’s broadest definition: employer firms with fewer than 500 workers .

An establishment is a business with one physical location. A firm is a business organization that may have multiple locations (i.e., multiple establishments).

Just how ‘small’ are small businesses ?

Among the roughly 6 million small businesses with employees, 49% have just one to four workers, according to the latest estimates for 2021 from the Census Bureau’s Annual Business Survey (ABS). About a quarter (27%) have between five and 19 employees; 8% have 20 to 99; and just 1% have 100 to 499 workers. The remaining 14% had paid employees at some point during the year, but not during the March 12 pay period, which the ABS uses to determine employment size.

Overall, small businesses employed an estimated 56.4 million workers in 2021 and brought in over $16.2 trillion in revenue, according to ABS data. Perhaps unsurprisingly, small businesses with more employees tend to account for larger shares of overall revenue than those with fewer workers.

Who owns and runs small businesses?

Some small businesses are family-owned, but the vast majority are not. Among small businesses that reported this type of information for 2021, 27% were family-owned and 73% were not.

So-called “mom and pop shops” account for a relatively modest share of small businesses for which information is available. Overall, 10% of small businesses in the U.S. were jointly owned and operated equally by spouses in 2021. Another 11% were jointly owned by spouses but separately operated, with men more likely than women to serve as primary operators.

Franchises aren’t very common among small businesses. Just 5% of small businesses that reported this information were fully or partially operated as franchises in 2021.

In terms of demographics, men own a greater share of small businesses overall. About six-in-ten small businesses (61%) were majority-owned by men in 2021, while 22% were majority-owned by women. Another 14% were owned equally by men and women. (The ABS defines majority ownership as having at least 51% equity in the firm.)

Looking at small businesses where estimates of majority owners’ race and ethnicity are available, most (85%) had majority-White ownership in 2021. Smaller shares were majority-owned by Asian Americans (11%), Hispanic adults (7%), and Black or African American adults (3%). About 1% were estimated to have either American Indian and Alaska Native, or Native Hawaiian and other Pacific Islander majority owners.

Related: A look at Black-owned businesses in the U.S.

Despite owning small shares of these firms overall, many Black and Asian Americans see entrepreneurship as a marker of success, according to Center surveys.

For example, 30% of Asian Americans say owning a business is important to their own view of the American dream, according to a Center survey conducted from July 2022 to January 2023 . And 36% of Black adults say owning a business is important to their personal definition of financial success, with another 22% saying it’s essential , according to a September 2023 survey .

Still, Black and Asian Americans are more likely to place emphasis on other measures asked about in these surveys, such as owning a home, having a good family life and being debt-free, among others.

How old are most small businesses?

Many small businesses have stood the test of time. In 2021, the majority of these firms (59%) had been operational for at least six years, according to the Census Bureau’s Business Dynamics Statistics . This includes 15% that had been in business for more than 25 years.

On the other end of the spectrum, about a third of small businesses (35%) had been running for five years or fewer in 2021, including 9% that had launched in the last year. (The bureau could not determine the age of the remaining 6% of firms.)

How often do new businesses open?

Small businesses have reported financial and staffing challenges in the years following the coronavirus pandemic . But federal data reveals the staying power of entrepreneurship in the U.S.

The number of high-propensity business applications – those that are highly likely to turn into businesses with payrolls – remained relatively stable between 2009 and 2019, according to Census Bureau data . But the number of applications has risen since before the pandemic: There were nearly 1.8 million high-propensity business applications in 2023, up from about 1.3 million in 2019.

On the state level, places with larger populations saw the most high-propensity business applications in 2023. Florida (225,809) topped the list, followed by California (221,571), Texas (151,888), New York (131,206) and Georgia (80,403). But Missouri, Wyoming, Delaware, Florida and Colorado had the most applications per capita that year.

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Rebecca Leppert is a copy editor at Pew Research Center

Majorities of adults see decline of union membership as bad for the U.S. and working people

A look at black-owned businesses in the u.s., from businesses and banks to colleges and churches: americans’ views of u.s. institutions, 2023 saw some of the biggest, hardest-fought labor disputes in recent decades, older workers are growing in number and earning higher wages, most popular.

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