Introduction
The financial domain is one of interest for each businessman around the world, being the most important factor in the life of a company. The stocks of a company are directly proportional to its value on the market which might influence the destiny of the company. This is why, there is a need for equity research at one point in the life of a company, in order to evaluate what
the destiny of the company will be, and in fact, what is the value of that company.
Equity Research
In order to completely correct and full equity research, there are some steps that need to be followed. First of all, the equity research sums up all methods and all instructions that are needed to be run over in order to find out the value of a listed company.
Economic Research
After you chose the company over which you want to do the equity research, you should have under consideration the economics of that company. By economic aspects, one should refer to the GDP of that company, as well as the growth rates, Also on this first analysis, there should be checked the market size of the industry, and nonetheless the competition that is presented on the market at the evaluation time.
Financial Analysis
Once this first step is completed, there should be a focus on the financial face of the company that needs to be evaluated. The financial analysis is summing up some checks on the historical features, referring to the financial domain of the firm. First of all, there is a must in checking the
historical balance sheet, along with the cash flows and do not forget about the income statement. These verifications had to be done in order to make an idea about the past of the company.
Financial Modeling in Equity Research
After organizing the data discovered through the financial analysis, and then, adding it with the management’s plans and expectations, along with the present competition on the market, there is a Financial Modeling in Equity Research that needs to be put together. In this model, someone has to declare the financial statements. Among these financial statements, we can enumerate the BS, also the IS, and not the least, the CFs of the company that is under research.
In industry, we can find some models of evaluation that are able to help us reach a conclusion more precise and closer to the truth. These models are very popular. Discounted Cash Flows, as well as Relative Valuations and Sum of Parts Valuations, are certified models that are used in the equity research process.
Fair Price
Finally, there is a need for calculating the real fair price of the company. The fair price should be computed based on the models that were previously enumerated. The value should be fair, and it should represent the real value of the company, influenced by nobody, being purely objective. After calculating the price, this value should be compared with the Current Market
Price, in order to reach the conclusion of the equity research.
If the fair price is significantly smaller than the stock exchange, without doubt, the company should be sold out. On the contrary, if the stock exchange is smaller than the fair price, there should be an immediate attempt of buying the company.