Equity Research Flashcards
primarily means analyzing the company’s
financials, performing ratio analysis, forecasting the financials
and exploring scenarios to make a BUY/SELL stock investment
recommendation.
Equity Research
To study companies, analyze financials, and look at
quantitative and qualitative aspects mainly for decision: whether
to invest or not
Purpose
work for
both buy-side and sell-side firms in
the securities industry. They produce
research reports, projections, and
recommendations
concerning
companies and stocks.
Equity Research Analyst
EQUITY RESEARCH PROCESS
01 Economic Analysis
02 Industry Analysis
03 Company Analysis
04 Financial Statement Analysis
05 Equity Research Report Writing
06 Presentation or Recommendation
refers to evaluating costs and benefits to check the
viability of a project, investment opportunity, event, or any other matter. In
other words, it involves identifying, evaluating, and comparing costs and
benefits.
ECONOMIC ANALYSIS
is a marketing process that provides statistics about
the market potential of your business products and services. This section
of your plan needs to have specific information about the current state of
the industry, and its target markets.
➢ Example: collecting data related to the economic situation of the country,
the demand for the product/service, statistics related to the income per
capita of citizens within the economy, inflation, employment rate, etc
INDUSTRY ANALYSIS
Business Industry Sector
Financials
Mining and Oil
Media
Services
Logistics
Construction
Real Estate
Retail
Agriculture
Manufacturing
(a.k.a.
fundamental analysis) examines
a firm’s
financial condition,
products
and
services,
and
competitive strategy. Typically,
this allows us to better identify
how an organization responds
to
external
threats
and
opportunities.
COMPANY ANALYSIS
Use as a
basic tool in analyzing a firm.
SWOC and PESTLE
involves gaining an understanding of an
organization’s financial situation by reviewing its financial reports. The
results can be used to make investment and lending decisions.
FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
Balance Sheet, Income Statement, and Cash Flow
➢ Includes all the components of
an equity research
➢ Can be used in the CFA equity
research competition
REPORT WRITING
Step 6 in Equity Research
Presentation and Recommendations
MAJOR COMPONENTS OF AN ER
Executive Summary
Business Description
Industry Overview
Investment Summary
Financial Analysis
Financial Ration
Investment Risk
Environmental, Social, and Governance
Appendixes
Reasons why we should invest in the chosen company [in terms of
financials, ESG, dividend earnings, etc
Executive Summary
❑ Profile
❑ Sector
❑ Market scheme
❑ Acquisitions and partnerships of the company
Business Description
Industry Overview
Industry overview and competitive advantage
❑ Brief description about the industry where the company belongs
❑ The company’s main contribution to the country [renewable energy, less
carbon footprint, etc]
❑ Competitive position against its competitors
❑ Opportunities driven from the company [sustainability contribution,
earnings obtained by stakeholders, pricing, value, etc]
❑ Current and future plans
Investment Summary
❑ Revenue growth
❑ Volatility of stock price
❑ Rate of earnings given to investors
❑ Net income / losses through the years
Financial Analysis
❑ Capital expenditures [provided with pie graph]
❑ Revenue growth [provided with pie or a bar graph]
❑ Net cash flow [shows the cash expenditures of the company]
❑ Net cash forecast [in the upcoming years, will their cash movement have
an upward or a downward trend?
❑ Financial Ratios
❑ Gross profit margin
❑ ROE
❑ ROA…….. etc
❑ Based on the group’s analysis/ assessment of the financial reports, what do you think are
the risks in investing on your chosen company
Investment Risk
❑ Risks to be identified:
❑ Financial risk
❑ Political Risk
❑ Firm Risk [its potential in sustaining a marketable brand]
❑ Regulatory risk [government policies and laws which can possibly affect the
operations of the chosen company]
❑ Market
Environment, Social, and Governance
❑ Environment [what are its contribution to the environment?]
❑ Social [impact to the society such as employment, engagement, public relations,
charities, etc]
❑ Governance [ what are the impact of the company to its stake holders? Does it payback
thru efficient and continuously increasing dividend payments? Does involve the
stakeholders in its company decisions?
Last Major Component of ER
❑ Appendixes
