What is Equity Research?
It is the process of gathering and interpreting information from in-depth research on publicly traded companies, business and market developments, industry trends, and corporate strategy. An equity analyst surveys economic trends, evaluates a company’s growth potential, estimates when it will be profitable, formulates earnings projections for different time horizons like one year or five years), and develops recommendations that can reflect buying/selling/holding shares. The analyst as noted by Fintalent’s equity research analysis consultants will also make recommendations on the merger and acquisition of companies and the sale of assets.
There are two basic methods used in equity research: fundamental analysis and technical analysis. Fundamental analysis is a process that assesses a company’s valuation, competitive advantage, and financial position. Technical analysis is a method for analyzing the movement of securities by studying supply and demand pressures, price charts, volume charts, open interest ratios and pattern recognition.
As an equity research analyst, one must be able to document all arguments that he/she makes with facts, figures and analyzation. As a professional equity research analyst or investment banker, it is important to develop personal relationships with clients. Research analysts should be able to compile the financial and business data, market opinions and forecasts that support their recommendations on a stock.
Although the analyst may be responsible for presenting research to clients, a client is usually not asked to sign an agreement before receiving the research. Research reports are usually sold out of a firm’s offices or sent directly via fax or email. Most firms require a minimum order of 25 shares, but many times analysts sell more than just one hundred shares in order to get their foot in the door with a new client.
Most equity research analysts work for investment banks or brokerage firms (in both cases working for an employer that has an ownership stake in the company). Therefore, equity research is viewed as a competitive industry, with analysts competing for investment banking opportunities. Market makers and broker-dealers are both considered to be intermediaries. The difference between the two is that a broker-dealer links investors with securities whereas a market maker links securities with investors. A broker-dealer can be an intermediary or may operate under special legislation that allows for exclusive trading privileges (see full service and discount brokers).
Investing in stocks of publicly traded companies involves risk, including the possible loss of principal. The price of shares in publicly traded companies depends on many factors including the earnings outlook, growth potential and value compared to similar companies in its industry group as well as general market conditions. The price of shares can fall as well as rise and thus an investor may lose the original amount invested.
In the United States, equity research analysts must pass Series 19 exams offered by Financial Industry Regulatory Authority (FINRA). The Series 19 exam consists of two parts: The Series 7 exam and the Series 63 exam. In Canada, Equity Research Analysts work under National Instrument 81-102 which covers analysis and recommendations and may be held by any categories of registration such as a Portfolio Manager, Dealer, Investment Counsel of Investment Advisor Representative.
A Certified Public Accountant (CPA) usually works in financial advisory services or consulting services to help business owners with their finances in order to avoid bankruptcy. The CPA will look at a business owner’s tax returns and provide advice accordingly. The job of the CPA is to ensure that tax laws are followed by the business owner, thus avoiding further penalties.
The Certified General Accountant (CGA) works in accounting services and provides the same services as a Certified Public Accountant (CPA). The difference between a CPA and CGA lies in their education and experience. For example, Certified Public Accountants (CPAs) must have had at least four years of college, while Certified General Accountants (CGA’s) must have received an undergraduate degree in accounting or an MBA with a concentration in accounting. Certified General Accountants (CGA’s) must have at least two to three years of experience in accounting and auditing.
A Certified Management Accountant (CMA) has the same education requirements as a Certified Public Accountant (CPA), but a CMA specializes in management accounting. This means that they will be analyzing budgets, costs, and revenues. A CMA works with businesses that are looking to improve their performance. In order to become certified as a CMA, one must complete all the required coursework, have professional experience in management accounting and take the examination which is called the “Certified Management Accountant” or “CMA” exam given by the ACCA (Association of Chartered Certified Accountants.
A Certified Internal Auditor (CIA) has the same educational requirements as a Certified Public Accountant (CPA), and has the same potential of earning more money than a CPA. However, CPA’s can audit external financial statements, but CIA’s may not. A CIA completes internal audits for companies and government agencies. Their job is to ensure that internal controls are in place to mitigate fraud and corruption. In order to become a CIA, one must have about three years of auditing experience, have a degree in accounting, and complete the required coursework. Like the CPA exam, the CIA exam is also administered by the ACCA.
A Certified Information Systems Auditor (CISA) is an individual who has demonstrated an in-depth knowledge of internal controls and risk management systems within an organization in order to evaluate information security systems and practices that support those controls. The CISA certification has been developed jointly by the two largest global-based professional organizations: ISACA and IIA. The acronym “CISA” can be confusing because it sounds almost identical to “CIA”, which stands for “Certified Internal Auditor”.
