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What Does a Equity Research Analyst Do?

An equity research analyst is responsible for reviewing stocks, bonds, and other financial tools to produce an unbiased report for investors.
A conflict of interest can occur if an equity research analyst owns stock in an industry they are evaluating.
An equity research analyst may be required to conduct additional research into a company's background.
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  • Originally Written By: Carol Francois
  • Revised By: Bott
  • Edited By: Heather Bailey
  • Last Modified Date: 27 November 2014
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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.

Research Process

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.

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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.

Qualifications

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.

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Discuss this Article

TheXx
Post 5

Having some reservations about the analysts, or the companies using them, may be somewhat valid, but look at the other side of the argument. Companies that sell mutual funds need an analyst to do investment research to help the fund manager pick the stocks. The fund manager doesn't always have time to find new stocks because he is busy managing the current portfolio.

As far as a company plumping up numbers to get consumers to buy certain stock, they have nothing to gain from it. When consumers lose money in stocks, they no longer have money to invest. When they are successful, they put more money into stocks. That's not to say fraudulent reports are never created, but if you are dealing with a known company, you probably don't have to worry about this happening.

JaneAir
Post 4

@strawCake - I share your reservations. I'm hesitant to accept a good review of something from someone who is also selling that product.

I think your idea of an equity research analysis firm that only does research is a good one. Conflicts of interest notwithstanding, I think the job of doing research is so specialized firms should only concentrate on that!

strawCake
Post 3

I would never trust an equity research analysis done by a company that also sells stock! This just seems like it would be a tactic ripe for abuse.

I feel like if a company is selling something, they're going to want to show it in the best light possible. I bet it wouldn't be very hard for an equity research analyst to manipulate the facts to show a company in the best light possible.

I bet there would be a market for an equity research analysis firm that doesn't sell stock!

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