The research analysts cull data from financial statements of the company and PIB/ public information documents to value and estimate forward the companies' growth and financial indices. They also manage investments, portfolios, funds and provide risk estimates.
All data for financial analysis of public companies can be found in their filings and PIB documents.
A. Firstly the list of documents is created. They include:
- General information like data available from Bloomberg, Capital IQ, FactSet, and others.
- Annual report.
- The Prospectus.
- Form 10-Q.
- Proxy company shareholders and shares statement.
- Form 10-K.
- Equity research sell-side reports.
- Structure of ownership.
- Company News over 6 months from PIB or website.
B. The next step is to create the profile including company overview, financial overview, market statistics, statements, projections, the performance of stock price, leadership and ownership details, products, and more to give a fair understanding of the company, its segment, performance over the year, important events, etc.
C. Specific information analysis is then conducted.
Ex: For acquisition analysis
- Fit determination for industry, size, technology, etc.
- Potential like personnel talent, growth prospects and so on.
- Financial parameters like leverage, share dilution/accretion, market views, etc.
- Legal constraints involved etc.
Once the idea has been vetted the availability of the target is considered.
Availability signs are
- Owners looking to sell.
- Large capital needs.
- Discontent among shareholders.
- Lack of Management talent.
Lack of availability signs are
- Insider control.
- No liquidity needs.
- Succession strategy being family or clear.
- Majority share owner being a company benefited by holding.
- Excellent financial parameters and performance.
- The parent company is the best choice.
D. The last step is to create the financial models for the merger, LBO, DCF, prior records of transactions, comparable companies and such to suggest and explain a strategic purchase price.
Here quantitative analyses are not very cumbersome and are mainly to determine the risk assessment and justify current market and stock prices.
Ex: While looking to value-invest in a company trading at six times the earnings P/E prices involves a lot of reading and inferences drawn from such reading of PIB. Based on such inferences one will justify not investing if reasons presented in the dissertation are
- Options of restructuring are too late.
- The rate of decline in costs is lower than the falling rate of revenues.
- Insider shareholders selling.
- Single-party control.
- Decline in earnings
- Negative perceptions in the market.
- Reliance on revenue from governmental earnings.
The models required would be transactional and competitive and DCF if applicable.
This is very similar to investment banking research process with the exception of financial indices of PE like yield from FCF and leverage.
On a concluding note, one can do financial analyst courses from a reputed institution like Imarticus which provides for a financial analyst certification readily acceptable in the market for jobs and as a career choice par excellence.