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How to read the equity research report

The equity research report provides the required information for the common investor. Professional analysts prepare research reports that recommend buy/ sell or hold for a particular security to investors. Such reports make it easy to take sound & informed investment decisions.

The research reports are of two types – Fundamental reports & technical reports.

Technical reports are based on historic price movements in the security, wherein analysts study the pattern in the movement & recommend the actions based on their study.

Fundamental reports are based on qualitative factors such as business structure or strategy, quality of management, future growth, etc.

 

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A research report provides information in the following areas:

- Basic information about the company – It includes basic information of the company like – ticker symbol of the company, exchanges on which it is traded, sector of the company, current price, major shareholders of the company, market capitalization, important recent developments, an earnings forecast, valuation summary, recommended investment action, etc.

- Business Description –It includes a detailed description of the company, its products & services, key drivers of revenues & expenses, etc.

- Management & governance -  In this section, you will get information regarding the company’s management & board, senior management’s history with the company, their holdings in the company. In addition, it provides a review of the composition of the company’s BOD & if they are sufficiently independent of the risk is evident.

- Industry review & competitive positioning – This section provides information about industry dynamics & competitive analysis of the industry. It talks about the changes in industry dynamics & their impact on the company. It also includes information regarding production capacity levels & pricing, distribution of market share & its stability.

- Valuation & financial risks -  A detailed analysis of company valuation is provided using equity valuation models. In addition, the detailed analysis of the company’s current financial performance & forecast of future performance is provided.

- Investment risks – This section raises a red flag if any company or industry developments would prove risky for investors. The risks can be operational, financial, regulatory, or legal issues faced by the company.

An investor needs to know that research reports can be used as one of the tools to select the stock &  not the only tool. The investor’s own study & research is equally important.

The research report can be trustworthy only for a particular time frame as the analysts provide the buy or sell calls considering the specific time frame in mind.

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