Equity research
| Equity research |
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| See also |
Equity research means company finance analysis, performance of coefficient analysis, financial modeling (forecasting of financial results) and conducting a scan of the surveyors and the intention to choose between buy / sell in relation to the investment. Research conducted by equity research analyst is documented in research reports[1].
Equity research analysts are people who deal with the study of shares, analyze groups of shares to provide sellers and traders, investors, recommendations and investment ideas on their basis. The way they communicate is their reports[2].
Function of equity research
Financial information is the most valuable resource for financial markets. That is why equity research plays an important role. Investors need specific information and data to know what to invest their money in. Information is helpful when they are faced with the decision to enter or leave a position. To participate in transactions, they need information to be able to price companies. All these questions are answered by capital tests carried out by branches in financial institutions[3]:
- Equity Research provides full information between buyers and stock sellers.
- Thanks to equity research, you can solve the problem of not being able to analyze each stock at institutional and individual levels.
- The role of analyst equity research is based on continuous analysis of actions, tracking of messages, conversations with management or estimation of share prices.
- What is important, capital research contributes to the generation of profits by the buyers.
Sell Side Equity Research Analyst
Sell-Side equity research analyst is an analyst dealing in sales research. It is the person who creates the models, analyzes data from various sources, which include suppliers, competitors and clients. The analyst presents his analyzes in reports, which later are presented to the company and clients.
Buy Side Equity Research Analyst
Buy-Side equity research is an analyst in the field of buying. Their work is similar to the work of sales-side equity research, but in this case they try to recognize the best performers achieving the best results on the market. In contrast to sell-side equity research, they focus on more industries and companies at the moment. In this case, the research reports are reserved. They are also used as a supplement to public sales analysts' research.
Hierarchy in equity research
The classic hierarchy in equity research is as follows:
- Head of Equities
- Analysts (senior), which cover various sectors. Each of them operates around 10-15 companies in a particular sector. Each of the senior analysts may have a colleague who may also be supported by younger analysts.
Who uses equity research?
Equity research is directed to:
- Independent research companies: those who study capital but do not have a trade and sales department.
- Large research companies that deal with shares.
- Pension Funds, Hedge Funds, Mutual funds, Insurance Companies etc.
Examples of Equity research
- *Stock Analysis: Analyzing the financial performance of a company and its stock price, assessing the company's business model, and making a recommendation of whether to buy, sell, or hold the stock.
- *Industry Analysis: Examining the current state of an industry, assessing the industry’s growth prospects, and making a recommendation on whether to enter or exit the industry.
- *Portfolio Analysis: Analyzing a portfolio of investments to assess the risk-return characteristics, identify any potential gaps in the portfolio, and make a recommendation on how to adjust the portfolio to best meet the investor’s risk-return objectives.
- *Valuation Analysis: Analyzing the financial statements of a company and using financial models to determine the intrinsic value of the company’s stock for the purpose of making a buy/sell/hold recommendation.
Advantages of Equity research
Equity research provides investors with a number of advantages. These include:
- Increased insight into a company's financials, allowing for better decision-making. Equity research provides investors with a detailed analysis of the company’s financials and performance, allowing them to make more informed decisions.
- Increased understanding of industry trends. Equity research helps investors stay up to date on the latest trends in the industry, enabling them to make more informed decisions.
- Ability to identify opportunities. Equity research can help investors identify potential opportunities in the market, allowing them to capitalize on them before they disappear.
- Ability to assess risk. Equity research provides investors with the ability to assess the risks associated with a particular investment, enabling them to make more informed decisions.
- Access to expert advice. Equity research provides investors with access to expert advice, which can help them make better decisions.
Limitations of Equity research
Equity research is a critical aspect of the financial markets, however, there are some limitations that should be taken into account when conducting such research. These limitations include:
- Time constraints: Equity research often requires a significant amount of time and resources to be conducted properly. As such, it can be difficult to complete the research in a timely manner, making it difficult to act on any information that is uncovered.
- Cost: Equity research can be expensive, and depending on the size of the company and the complexity of the research, the cost can be quite high.
- Access to data: Access to the necessary data and information can be difficult to obtain, depending on the company and the industry.
- Conflicts of interests: Conflicts of interests can arise when conducting equity research, such as when the researcher has a personal stake in the company being researched.
- Professionalism and experience: Professionalism and experience are paramount when conducting equity research, as mistakes or inaccuracies can have serious repercussions.
- External influences: Equity research can be significantly impacted by external factors, such as changes in political, legal, and economic factors.
Equity research is a comprehensive analysis of a company's performance, involving financial modeling and analysis of coefficients, as well as a review of investment surveyors and decisions to buy or sell investments. Additionally, equity research can include the following approaches:
- Fundamental Analysis – a form of analysis that examines a company’s financial health and performance. This involves looking at different aspects of the company’s financials, such as revenue, earnings, balance sheet, cash flow and ratios, to determine the company’s overall performance.
- Technical Analysis – a form of analysis that examines the trading patterns of a company’s stock or other securities. This involves looking at the company’s historical price activity and volume to determine the direction of the stock’s future movements.
- Risk Management – a form of analysis that examines the risk associated with a company’s investments. This involves looking at different aspects of the company’s investments and the potential risks involved, such as market volatility, political and economic risks, and credit risks.
- Valuation Analysis – a form of analysis that examines the value of a company’s securities. This involves looking at different aspects of the company’s securities, such as its price-to-earnings ratio and other fundamental factors, to determine the company’s overall value.
In summary, equity research involves a comprehensive analysis of a company’s performance, including fundamental analysis, technical analysis, risk management and valuation analysis. This analysis is used to make informed decisions about investments and to help investors maximize their returns.
Footnotes
References
- Bajikar S. (2016). Equity Research for the Technology Investor: Value Investing in Technology Stocks, Bajikar Tech Investor, San Francisco, Chapter 4
- Dun. (2008). Equity Research And Valuation, Tata McGraw- Hill Education, pages 1-4
- Elcock G. D. (2010). How to Get an Equity Research Analyst Job: A Guide to Starting a Career in Asset Management, Ecademy Press, St Albans, page vi
- Valentine J. (2011). Best Practices for Equity Analysts: Essentials for Buy-Side and Sell-Side Analysts, McGraw Hill Professional, United States, page 4
Author: Magdalena Wójcik
