how to write an equity research report

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© Copyright 2004, Joachim Landström. All rights reserved

Writing an Equity Research Report

Advanced Company ValuationUppsala University

Department of Business StudiesFall 2004


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What is an equity research report?

The equity research report is a communication from a securities firm to its clients with a very specific purpose:

It is intended to help an investor make a decision about the allocation of resources. All other purposes are secondary.

What constitutes a “research report”? In Sweden it is not specified. As is the case in many other countries.The NASD (Rule 2711: a.8) generally defines “research report” as:

• “. . .means a written or electronic communication that includes an analysis of equity securities of individual companies or industries, and that provides information reasonably sufficient upon which to base an investment decision.”

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Who reads a research report? Investment professionals (pension and mutual fund managers, institutional sales people, bankers, wealth management specialists, the subject companies’ own financial personnel, retail brokers servicing individual clients, etc.)

What are the readers looking for?More than anything else:

• Ideas for directing their own inquiries. V§irtually all investment professionals do their own research before committing any funds.

How do you help the reader make a decision?You try to identify trends that you expect to add value or that (conversely) are early indicators of problems that would destroyvalue

Who reads an equity research report?


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When you plan a research report, keep the following points in mind:

Always operate on the KISS principle – your readers’ time is at a premium, and you want a client to read your stuff rather than that of your competitors.Always have something to say – a bored or baffled reader is a wasted chance to influence a client (not to mention an embarrassment for you and your firm).Always issue your piece in a timely manner –investment advice offered too late to be of any value wins you no praise at all.Always remember your reader is also a professional – never condescend.

What must I remember before I start to write one?

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You are seeking to inform the reader and aid an investment decision – simply telling your clients what happened, without offering some opinion or view on the future, is useless (they can read the newspapers as well as you can).You are NOT writing the definitive study of the subject. Leave that to historians.You are NOT doing the company’s advertising for it. Leave that to its PR firm.

What must I remember before I start to write one?


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Concentrate on these areas:Know the company.

It is accounting, it is products and services, it is management, it is selling practices, it is ability to manage its own business, it is relations with customers and suppliers, it is R&D capabilities, and so forth.

Know the industry.The customers, the competitors, the international picture, the emerging names, the new trends and products, the companies in trouble.

Know what the government thinks about the company and the industry.Know what the market thinks about the company and the industry.Know what your clients are looking for in terms of investment ideas.

What do I need to know about the subject before I start?

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L0- 7 Where do I get the information to write a Swedish equity research report?

Annual reports and official filingsYou must know these data thoroughlyRead every footnote very carefullyIf the company is traded in the US (more info required)

• Visit www.sec.gov and get the 10-k and 10-q statements. Possible also others such as 8-k and 13-d. . .

Company press releasesCompany visitsIndustry studies by official bodies or third-party entitiesGovernment sources

Statistics Sweden (www.scb.se)The Riksbank (www.riksbanken.se). . .

Swedish and international business pressAffärsvärlden (www.afv.se)Dagens Industri (www.di.se), FT (www.ft.com)Dagens Nyheter (www.dn.se), SvD (www.svd.se), . . .


L0- 8 How do I begin to write an equity research report?

The report cover may be the only page that some people read, so get the basics out RIGHT AWAYThe reader should immediately learn the following:

The reason to read the report• There must be a paragraph that gives the client a reason to read

the report. It should highlight what is new about your analysis,what your key investment conclusion is, what investors should dowith the stock, and why.

Answers to the following important questions• Why are we writing the report?• What is our investment conclusion and why?• What is new in our analysis and/or different from consensus?• What risks/catalysts would change or reinforce our view?• On what basis do we value the stock?

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L0- 9 How do I continue to write an equity research report?

Always remember that your readers’ time is preciousKeep it short – Max 30 pagesUse message headings to help readers navigate documents Use charts and graphs – a relevant picture really is worth thousands of wordsEdit the text to remove abstractions, jargon, passive verbs, and needless words (for example, “We conclude that …” is far superior to “It was concluded that …”)Your audiences are financial professionals – you don’t have to define NPV or how to derive a DCF. However, you are not writing for a circle of insiders (or you shouldn’t be), so the first time you use a technical word or a term of art, define it, even if you think it is well known (you are trying to encourage new investors to look at your companies and sectors)


L0- 10 Structure is critical to a good equity research report

An equity research report is not a novel. Make your main point(s) early in the report, and don’t be afraid to repeat it/them. Do not try to build up to a climax at the end of the report; many readers may not even get this far.

Make your report design clear at the beginning.Readers can go straight to the bits they are particularly interested in.

Make your format and layout as uncluttered as you can.Things that are hard to read don’t get read.

Remember that a report is like a debate.First tell your reader what you are going to say, then say it, then tell the reader what you said. Never leave a reader wondering what all this was supposed to mean.

Make sure that all illustrations are keyed into the text and also that they are relevant to your point.

Nice but irrelevant pictures or fancy graphs and charts that are not linked to the argument, take up space, and waste reader time

You must discuss the risks to your view, clearly and openly.Do not try to evade this responsibility.

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L0- 11 Stick to basics when writing the equity research report

Where possible, put your data in a table.It is better to present tabular data than to discuss numbers in the text.

Use the text to give the message (“Growth expectations for the companies we cover have risen in the past month”).

Use the tables, charts and graphs to give the details of the changes.

A reader loses track of what is happening in a long sentence with many subordinate clauses.

You do not want this to happen. Make your sentences short and simple (subject-verb-object works just fine), and try not to use long words if you can use short words and still make your meaning plain.

how to write an equity research report

Economy & Finance