Last updated on April 11th, 2024 at 12:47 am
Financial Institutes, brokers and investment bankers have to work hard and keep up with the market fluctuations to predict the market prices correctly. For that, they have to study the industry, company and operations of their targeted investment opportunity.
In this article, we will discuss What is Equity Research, what does equity research analyst do? And their processes. Equity research is a wide field and considered as second to investment banking, although they are different.
Let’s first understand about What is Equity Research –
Equity Research
To answer in simple words – What is Equity Research? Equity Research is the process of analyzing the stock market in order to make precise predictions about the price of shares in the near future.
Investment bankers, Financial institutes and brokers do equity research in order to give more precise and helpful suggestions to their clients about what they should do with their funds and investments. Whether to invest in certain stocks, Sell certain shares or hold it, for answering all these answers, the Broker and brokerage firms do equity research.
In equity research, there are 3 main things – Industry analysis, company analysis and financial statement analysis. The people who do equity research are called Equity Research Analysts.
Now that we know about What is Equity Research, let’s see who Equity Research Analysts are and what they do.
If you are reading about What is Equity Research? You should also read : What is securities in finance? In easy words.
Equity Research Analyst
Equity Research Analyst is someone who performs Equity Research for their firms or their clients. Equity Research Analysts are the one performing equity research work of analyzing previous data and creating a report which will help make precise decisions about the future of stocks, which then is used for making suggestions to the clients.
Mostly, Equity Research Analysts regularly monitor the market for fluctuations, Check up with their contact in industries and companies for any new updates, make reports based on their current data for daily fluctuations in price. This is done in order to stay updated about the market.
The ultimate aim of Equity Research Analyst is to give reports to Investment managers, brokerage firms and banks so they can help to maintain their clients portfolio. These firms make suggestions based on the data provided by the Equity Research Analyst about what to invest in, whether to buy new stocks, sell existing ones or hold them.
After learning about What is Equity Research and who is an Equity Research Analyst, let’s move onto understanding What is Equity Research Report and its contents.
If you are reading about What is Equity Research? You should also read : What are Derivatives in Stock Market? 4 types of derivatives – Best Trader’s Secret
Equity Research Report
Equity Research Report is the report that is presented by the Equity Research Analyst to their clients – Investment managers, brokerage firms and banks. This report helps them to make a more informative call regarding their clients investment.
Let’s see what is equity research report’s contents, they are explained below:
Industry Analysis
The first and foremost part in equity research reports is Industry analysis. Industry refers to a business market where all the businesses are in a similar field. For example, the pharmaceutical industry includes all the pharma companies and businesses.
Here, history of a certain industry is considered, what their current situation is? What are the trends in this field? All these data are included in the research report.
Porter’s Five Forces model and PESTEL analysis are the 2 most popular methods for conducting the Industry research.
Company Analysis
Once the Industry is analyzed, next up is Company Analysis. In company analysis, the Analysts study the operations and management of the company.
The analysts study about how the operations are carried out in the company? How does the management work? What techniques do they use? What new operations are going to be carried out? What are the future plans? And so on. This helps the analyst to evaluate the future success of the business which will affect the company’s stock prices.
Equity Research analysts have the right to ask such questions directly to the company and their employees, this is one special permission which makes them more effective.
If you are reading about What is Equity Research? You should also read : The Most Effective and Flawless 7 steps in Financial Planning
Financial Statement Analysis
Next up is The Financial Statement report. The analyst studies the company’s financial statement to understand the cash flow of the company.
The Financial statement reveals the details about the past performance of the company, their cash flows, the trends in their cash flow, profit and loss statements, past to present history of the company’s stock prices.
Forecasting Results
After all the analyzing parts are completed, it’s time to forecast what future fluctuations this company could experience in their stock prices.
Usually, for forecasting, the analysts use top to bottom approach, where they analyze from industry to financial statement or bottom to top approach where they analyze from company’s revenue system to industry.
The analyst forecast about what situations the company could experience in future and how they would impact their business and the stock prices in future.
Financial Modeling
After the process of forecasting is completed, the next content is the financial modeling. The analyst makes a financial model for the company on the basis of the forecasting results they got.The most commonly used financial models are 3 statement models and DCF models.
Recommendations
The last and the most important part is Recommendations the analyst provides. These recommendations are based on all the above 5 steps. The recommendations are made according to the aim of the investors
Mostly, investment managers, banks and brokerage firms directly take their recommendations and suggest it to their clients. Many times, they also add their own assumptions and add it to the analyst’s recommendation.
If you are reading about What is Equity Research? You should also read : 4 Best Global Bond Funds to invest
FAQs
What is the process of equity research?
Equity Research is the process of analyzing the stock market in order to make precise predictions about the price of shares in the near future. The process of equity research includes industry analysis, company analysis, financial statement analysis, forecasting, preparing financial models and then finally making the recommendations.
What are the types of Equity Research?
Fundamental Reports
Technical Reports
These are the 2 types of Equity Research Reports
Who needs Equity Research?
Investment managers, brokerage firms and banks providing investment banking services require Equity research in order to make informed and precise suggestion to their clients
Closing Statement
Equity Research plays a crucial role in forecasting the future fluctuations in share prices of stocks. It is an important job and essential role in financial institutions.
I hope this blog helped you understand about What is Equity Research. If there are any queries or suggestions, write your research recommendations down in the comment box.