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.