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The Structure of The Equity Research Report

The document summarizes the key components and purpose of an equity research report. An equity research report is prepared by analysts to help investors make decisions about allocating resources by providing stock recommendations and analyses. The report typically includes sections on highlights, investment summary, historical financial analysis, valuation, business description, and risks. The goal is to justify buy or sell recommendations through modeling and comparing the company to peers in the industry. The report aims to help brokerage clients, such as investment funds and insurance companies, make informed investment decisions.

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BALAJI RAVISHANKAR
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© © All Rights Reserved
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246 views

The Structure of The Equity Research Report

The document summarizes the key components and purpose of an equity research report. An equity research report is prepared by analysts to help investors make decisions about allocating resources by providing stock recommendations and analyses. The report typically includes sections on highlights, investment summary, historical financial analysis, valuation, business description, and risks. The goal is to justify buy or sell recommendations through modeling and comparing the company to peers in the industry. The report aims to help brokerage clients, such as investment funds and insurance companies, make informed investment decisions.

Uploaded by

BALAJI RAVISHANKAR
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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The Structure of the Equity Research Report

Prof Hitesh Punjabi


What is Equity Research Report

• Equity Research Report is a document prepared by Equity Research


Analysts or Financial brokers.

• An equity research report may focus on a specific stock or industry/ sector,


currency, commodity or fixed-income instrument, or even on a geographic
region or country.

• Research reports generally, have some recommendations as to why buy or sell


that stock including DCF modeling, relative valuations etc
What is Equity Research Report
• The equity research report is a communication from a securities firm to its
clients with a very specific purpose.

• It is intended to help an investor make a decision about the allocation of


resources
Who are the clients of Brokerage Firms?
• A Financial broker is basically an intermediary between the clients and the
investment world. Broker are organizations like J.P.Morgan, Goldman Sachs, Credit
Suisse, Nomura, Morgan Stanley etc.

• Clients are large investment funds like Pension Funds, Life Insurance Companies,
Mutual Funds, FIIs etc.

• Although, brokers facilitate the investments, they also provide investment advice.
• Sometimes this investment advice is paid for by the clients. However, in most cases,
the investment advice is provided for free.

• “Brokerage houses basically sell their Ideas”. They charge commissions on each
transactions executed through their trading division
Types of Equity Research Report
• Initiation Report
• Industry / Sector Report
• Strategy/Economics Reports
• Results Update Report
• Flash Report
The equity research report template
• Highlights
• Investment summary
• Historical financial analysis
• Valuation
• Business description
• Other headings
• Industry description and competitive position
• Historical financial analysis
• Estimates
• Investment risks
• Disclosures
Highlights section
• Tells the reader why they should read the report
• 1-2 sentences per bullet.
• Be clear and concise

Investment summary section

• Make a longer statement about your recommendation.


• Make assertions that back up your recommendation
• Leave support of assertions to the body of report
Valuation section
• Used to justify your price target
• Each of the models that you use should be presented. Do not reiterate
textbook material.
• Risks to the price target should be included
Business description section
• Describe business, products, finances, and strategy of company
• Relative importance of segments and products
• Highlight important assets or liabilities.
• Special situations/earnings interruptions
M&As
Restructurings – effects/pay back expectations
Discontinued operations
• Where is Leverage?
Operating: fixed v variable costs
Value added
How to manage downturn
Other headings
• Use to make points that do not fit in the rest of the report
• Contains for example:
Cost of capital calculations.
Dilution of shares analysis.
Large insider holdings, etc
Industry Description and Competitive position section
• Describe the industry
• Where in cycle does industry excel
• How has it performed in previous cycles
• Cyclical or continuous growth
• Industry Maturity
• Effects of recession/slow recovery
• Forcing factors of industry
• Who are competitors
• Describe how the company fits into the industry
• What are factors that affects the company the most
• Demand Environment
Historical financial analysis
• Must be ratio based using a bottoms-up using the DuPont and the
leverage formulas
• Historical and comparison with industry.
How as the company performed and how well in comparison with
industry
• Operating Performance
• Financial Performance
• Estimates section
The analysis of the future should be done relating the company to
its peers in the industry
• Investment risk section
Business risk/Financial risk

• Disclose risks to your recommendation


What would make you change your outlook for this company?
Be specific and describe why they are risks

• Disclosures section
Make adjustments such that direct ownership or material conflicts of
interest are explicitly exposed
Thank You

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