Equity Research and Valuation Fundamental Research

Prerequisite of Fundamental Research

Before starting of with Fundamental research on any particular stock you must have a deep understanding of that business and the sector. There are two broad categories of information which is required i.e., Qualitative and quantitative information for analysis.

Qualitative Information includes insight of the business and industry working which could be obtained through material readings, newspapers , company announcements, recent company development reports, Annual reports of company, management discussion, detailed discussion with management or promoter. For going more deeper, some analyst also interact with employees and customers of company to get a taste of how company works in and out.

Quantitative information includes financial reports i.e., Balance sheet, profit and loss account, Cash flow statement and all other possible reports which marks company’s performance in numeric term.

These prerequisite information is required to project revenues, earnings and other financial parameters of the companies which results into valuation of each share of a company.  Generally, analysts forecast 3-5 years of Financial parameters based on the history available. Though there is no fixed rule on the number of years to forecast as it purely dependents on company to company.

However there are few limitations to Equity research as in developing country or under-developed country, industry information is little bit difficult to get as data collection is not that accurate, Secondly, many management of companies are not willing to talk with the analyst or not want to disclose crucial information which could act as a hurdle while carrying out fundamental research.

So this was a brief about what is required to carry out research and what are limitations faced while carrying out research.

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