Why Equity Research Training?
Many students and professionals assume that their chances of making an Equity Research career are bleak if they are not from the top tier colleges. However, we have seen industry trends where skilled students and professionals from lesser known colleges making into buldge bracket equity research firms like JPMorgan, Nomura, CLSA, Deutsche Bank, Credit Suisse etc. Unfortunately opportunities to learn such skills in colleges and universities are very limited as they are mostly restricted to the course curriculum that focuses on theoretical aspects than actual practical know-how.
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The primary skills required for Equity Research are as follows –
- Master Microsoft Excel
- Visual Basic or VBA
- Analyst Accounting and Fundamental Analysis
- Equity Valuations like Discounted Cash Flows and Relative Valuations
- Financial Modeling
- Report Writing Techniques
Equity Research Training Approach
Our Equity Research training learn the detailed practical approach to Equity Research. Below is the Equity Research Training outcome –
1. Prepare Equity Research Model (base)
- Prepare a blank excel sheet with separate Income Statement, Balance Sheet and Cash Flows (starting 2003-04) and use neat formats (remember to use comma style etc and also the color coding)
- Populate the historical financial statements (Income Statement, Balance Sheet, Cash Flows) and do the necessary adjustment for Non-recurring items (one-time expenses or gains).
- Perform the Fundamental Analysis (Ratio Analysis) for Historical years (vertical analysis, horizontal analysis and trend analysis and calculate ROEs using Dupont).
2. Prepare Equity Research Financial Model
- Forecasting of Income Statement (P&L) is most important for analysts. Hence, much of analyst’s time should be devoted on this. For this you need to read through the annual report and other documents to get a solid understanding of how the forecast should be done. It is advisable that one should read through other brokerage house research reports to understand how they have modeled sales numbers.
- Please download annual reports as well as some other reports for peer groups.
- Forecast the financial model for the case study. Please use simple assumptions at this stage since this will be your first ever model on any live company. The idea here should be to get the approach correct.
- Balance the balance Sheet
a. Discounted Cash Flows
- Calculate FCFF as discussed in class and the handbook
- Apply a suitable WACC post the calculation of the capital structure
- Find the Enterprise Value of the Firm
- Find Equity Value of the Firm after the deduction of Net Debt
- Divide Equity Value of the Firm by the total number of shares to arrive at “Intrinsic Fair Value” of the company.
- Do sensitivity analysis of WACC with Share Price
b. Relative Valuations
- Identify the comparables based on the business, Market Capitalization and other filters
- Identify the suitable valuation multiple to be used for this business.
- Use the average valuation multiple to find the valuation of Pantaloon.
- Suggest “Undervalued” or “Over-valued”.
4. Calculate Target Price
- Based on DCF
- Based on Relative Valuations
- Recommend whether to “BUY” or “SELL”