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Equity Research & Financial Modeling

Professionals in equity research have to forecast quarterly data (or whatever frequency the company reports, e.g., semi-annually in Europe). They must uncover the story hidden beneath a company’s data, whether qualitative or quantitative. This component of an equity research report will contain a wealth of information about industry developments and competition. Senior-level roles are almost always sales or negotiation jobs, where your role is to generate revenue by bringing in new clients, raising capital, or closing deals.

Or, perhaps you do further research into the company and its market, become more skeptical, and decide against investing. He then gently encourages you to put your life savings into this tequila company. To find out more about finance careers, check out our interactive Career Map. We do give reasons for why these companies might be mis-priced, but the reasoning isn’t that detailed. For a pharmaceutical company like Jazz, you might see revenue by product, pricing and # of patients per product per year, and EBITDA margins.


While a risk management analyst is a viable career path, it has little been born in the stock research department. As a result, the decision between risk management and stock research should be based on your long-term goals. If you want to work in equities research and portfolio management, equity research analysts in India are the ideal way to get started. Another thing to keep in mind is that you can begin your career as a risk management analyst and then transition to equities research after accumulating solid job experience.

  • A leveraged buyout transaction typically requires modeling complicated debt schedules and is an advanced form of financial modeling.
  • Company executives might use them to estimate the costs and project the profits of a proposed new project.
  • CFI is on a mission to enable anyone to be a great financial analyst and have a great career path.
  • Top-down forecasting begins with the industry (its size, growth, price, etc.), assesses how much market share a firm is expected to have, and then works its way down to revenue.

All banks have a Chinese Wall between their investment banking teams and research departments, but there still remains an indirect incentive for research to be supportive of stocks the bank may provide investment banking services to. In order to build a financial model, you need a solid understanding of accounting fundamentals. You have to know what all the various accounts mean, how to calculate them, and how they’re connected. Financial modeling is a representation in numbers of a company’s operations in the past, present, and the forecasted future. Company executives might use them to estimate the costs and project the profits of a proposed new project.

In these financial models, you project a company’s revenue, expenses, and cash flow-related line items, such as the Change in Working Capital and Capital Expenditures. Investment bankers and corporate development professionals also build IPO models in Excel to value their business in advance of going public. These models involve looking at comparable company analysis in conjunction with an assumption about how much investors would be willing to pay for the company in question.

The easiest method to answer these questions is to relate your characteristics to those of an equities research analyst. The total compensation for these roles might range from $100K USD on the low end up to $500K USD depending on the industry, firm size, and location. Corporate bankers aim to win and retain clients who hire the bank for M&A deals, debt and equity issuances, and other transactions with higher fees.

Research Reports Give “Target Prices” Rather Than Target Price Ranges

In leveraged buyout models (LBO models), the goal is to calculate the multiple or annualized rate of return you could earn by investing in a company, holding your stake, and eventually selling it. This last category is a variation on the first category (3-statement models). For example, maybe the target company gives the acquirer access to a high-growth market that would have taken years to enter independently. Unlike 3-statement models, however, you do not need the full Income Statement, Balance Sheet, or Cash Flow Statement. The Income Statement shows a company’s revenue, expenses, and taxes over a period of time and ends with its Net Income (i.e., its after-tax profits). Here is a screenshot of the balance sheet section of a three-statement single worksheet model.


Investment Bankers assist companies in raising capital and executing transactions such as mergers and acquisitions (M&A). To do that, you assume that a new development initially draws on Equity (i.e., cash from outside investors) and then switches to Debt once a funding threshold has been met. Another difference is that in addition to modeling the acquisitions of existing assets, you may also model new developments in both these industries. Or maybe the target company has valuable intellectual property (IP) that the acquirer cannot easily develop on its own. The company’s Income Statement only shows the “Depreciation” representing the allocation of this $100 million over many years.

What is Financial Modeling?

Similarly, the report might mention catalysts and investment risks, but there won’t be a link to a specific valuation impact from each factor. A bank wants to encourage institutional investors to buy more shares of the companies it covers. Most of their time is spent speaking with management teams and institutional investors and sharing their views on sectors and companies. Near the bottom of the article, we include a downloadable sample equity research report by JP Morgan. Equity research reports are usually available for a fee through financial data providers. This guide has focused on a “typical” equity research report, but there are various other types that can take slightly different forms.

However, the sell-side analyst will not tie these factors to specific share-price impacts as a buy-side analyst would. If a company seems overvalued by 50%, a research analyst would probably write a “Hold” recommendation, say that there’s “uncertainty around several customers,” and claim that the company’s current market value is appropriate. In an equity research report, you’ll still financial modeling for equity research express a view of the company that’s different from the consensus, but your view won’t be dramatically different. In a stock pitch, you’ll spend most of your time and energy on the Catalysts, Valuation, and Investment Risks because you want to express a VERY different view of the company. To understand an equity research report, you must understand what goes into a stock pitch first.

The Cash Flow Statement records all the cash inflows and outflows, which gives you a full picture of the company’s business health. If a company buys a new factory for $100 million, its cash flow is reduced by $100 million – but you wouldn’t know it by looking at the Income Statement. We can’t assign a specific probability to this outcome, but we can say that no food & beverage company in history has ever achieved this performance in this time frame. In both fields, you explain how you arrived at the company’s implied value, which usually involves pasting in a DCF or DDM analysis and comparable companies and transactions. The valuation section is the one that’s most similar in a research report and a stock pitch. We mention catalysts in both reports, but we don’t link anything to a specific valuation impact.

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts. As you can see in the images below, the analyst clearly lays out the recommendation, target price, recent updates, investment thesis, valuation, and risks. As a result, pursuing a profession in equities research analysis in 2023 is an excellent choice. We’ll look at the breadth and employment prospects for equities research analysts in 2023 in this blog to help you develop a successful career in this profession. So, let’s start with understanding the core abilities needed to enter the profession of financial research and analysis.

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