An equity research analyst is responsible for reviewing stocks, bonds, and other financial instruments and producing an unbiased, factual report. There is a huge demand for this type of analysis, as investors rarely have the time or expertise required to review all the information on a particular company and determine both the current value and the potential future value. When reading a stock prospectus or brochure, investors should keep in mind that the information provided was gathered and reviewed by this type of analyst.
The steps involved in reviewing a stock may vary between research firms, but typically include reviews of the annual financial statements, sales figures and projections, current market trends, and the actual product or services offered by the firm. Information regarding key customers, amount of debt the company is carrying, and any legal liabilities is often required, and much of this data is publicly available, either through the news media or the company's annual financial statements.
Additional research into the background of the leadership may provide insight into existing business relationships, potential problems, or areas of hidden strength. A detailed report is difficult to write without some understanding of the products the firm provides, the target customer base, the market share, and any expansion plans. This information is typically found in the speeches presented by company leadership at conventions or sales meetings.
Conflict of Interest
Conflict of interest declarations are a major issue in equity research. Many firms that create these reports for investors are also investment firms, actively selling the same stock to clients. This type of activity makes it very difficult to believe that the information provided is completely bias-free. In Europe and parts of Asia, an equity research analyst is required to avoid any potential or existing conflicts of interest.
The same rule is also applied to journalists and financial reporters in Europe and Asia. At the end of every stock evaluation report, there is a statement to declare if the writer has any investments in this firm or if his employer does. This is essential to providing unbiased reports, as it is otherwise almost impossible to know the motivations behind the report.
In order to become an equity research analyst, candidates typically have a university degree or college diploma in finance, business, or accounting. Additional skills required to be successful in this career include excellent written communication, analytical reading, critical thinking, and research skills. People who can combine both communication and data management skills find this type of career rewarding.