Role Of Equity Research In Financial Management | Aranca

1. Role Of Equity Research In Financial Management ================================================================== Historically, equity research focused on the fundamentals and financials of the target company or the industry. However, dynamic financial environment demands that this research be comprehensive and include nonfinancial or alternate data sets that also impact the company’s performance.

2. Improved investment decision making by combining alternative data with fundamental equity research Similar to several industries, equity research has evolved in terms of the research process. More and more research teams (sell-side and buy-side) are using new data sources to augment traditional financial reports and other sources of information about companies. At its core, equity research covers the identification of investment ideas or a company from listed firms through filtering; analysis of the company’s business fundamentals, financial statements, and profitability to identify its intrinsic value; and communicating the research to decision makers/investors. The process helps investors make an informed decision regarding their investments. This process has more or less remained the same, with the usual sources of information being public filings, inputs from company managements, sector data, etc. Furthermore, it encompasses qualitatively and quantitatively screening equity ideas, deep diving into industry and company fundamentals such as industry business model, key segments, operational details, including capacity, production, utilization, markets, supply chains, labour, financing, and revenue and cost drivers. Investment managers are increasingly looking for differentiated investment ideas to generate alpha. Considering this, the research community is evolving its research process by incorporating alternative datasets along with the traditional research sources. In addition to meeting company management as part of their due diligence, they are getting out in the market, observing customer behaviour, and meeting suppliers/ distributors to understand the business challenges. Outsourced firms have improved efficiencies at the most crucial step of equity and investment research, i.e., to make a financial model. The model translates the details of a company’s business and financials into MS Excel-based interlinked spreadsheets to neatly capture evolving details of the company. It can be quickly prepared using starting database-linked templates. The analyst can then customize it in greater detail and finally forecast critical assumptions. While traditional research teams focus on specific sectors and local markets, research analysts in outsourced firms may get to work across sectors and markets, and thus, have a wider perspective on choosing the assumptions.