The difference between an equity researcher and an investment banker is determined by what post-graduate credentials are usually obtained. Most equity researchers earn a Chartered Financial Analyst (CFA) designation and most investment bankers get a Master of Business Administration (MBA) degree. Investment banking may no longer be the undisputed first equity research financial modeling choice for the best and brightest. Instead of streaming into investment banking, many top graduates are now opting for careers in management consulting, technology, or launching their own startups. While the allure of investment banking may have dimmed, due to long hours and a stressful work environment, the industry still attracts many workers.
According to the online finance community “Wall Street Oasis,” summer interns earn the equivalent of around $77,000, plus a signing bonus of around $6,000. First-year analysts at major banks earned an average salary of $83,278, plus bonuses, according to PayScale. Investment bankers should have an impressive knowledge of financial markets, investments, and company organization.
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The CFA, widely regarded as the gold standard for security analysis, has become almost mandatory for anyone wishing to pursue a career in equity research. But while the CFA can be completed at a fraction of the cost of an MBA program, it is an arduous program that needs a great deal of commitment over many years. Being a self-study program, the CFA does not provide an instant professional network as an MBA class does.
- Total compensation will vary greatly depending on job location, company, and the employee’s performance review.
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- But as they climb the ladder, they get the opportunity to work on exciting deals such as mergers and acquisitions or initial public offerings.
- They write equity research reports which provide an opinion to public investors as to what the fair price of a stock should be, and these reports are typically backed by projection models and sometimes DCF analysis.
For example, they all know that working in this sector requires analytical abilities and patience. As a result, if the interviewer asks about your strengths, you may tie these points into your response. The easiest method to answer these questions is to relate your characteristics to those of an equities research analyst.
Equity Research vs. Investment Banking: An Overview
With more than 40 offices around the world, we offer insights and expertise to investors, companies, and governments. As the name implies, the three statements (income statement, balance sheet, and cash flow) are all dynamically linked with formulas in Excel. The objective is to set it up so all the accounts are connected and a set of assumptions can drive changes in the entire model.
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It’s important to know how to link the three financial statements, which requires a solid foundation of accounting, finance and Excel skills. Equity researchers evaluate companies with the goal of making investment recommendations. They analyze a company in all aspects, from its financials to its competition to its industry outlook, and its share price, to determine how the company might perform in the future and how its share price might move. Investment bankers also analyze companies in a similar fashion, but their goal is to determine whether a company is suitable for a merger or acquisition. Successful research analysts and investment bankers generally have no shortage of external opportunities because of their experience, knowledge, and skills.
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Our Research Analyst Programme provides a practical springboard for graduate students to develop skills and apply them in real business situations. The programme emphasizes on-the-job-learning backed up by training tailored to the skills most urgent to acquire, be that financial modelling and valuation or writing and presenting skills. We also ask our experienced staff to host regular internal training around the strengths that have led to their success in order to support your development. This information is then packaged for use by the sales force to sell securities to customers. The researcher may make presentations directly to customers, and interact with the investment community in other ways, too. Thus, this tends to be a more visible role than that of the equity researcher whose work remains within a buy side firm.
Different Types of Reports
To do so requires hard graft, a real interest in the story that numbers can tell us, and an ability to articulate a complex conclusion or investment idea to a specialist and generalist audience. Here is an example of an M&A model used to evaluate the impact of an acquisition. These types of financial models are used in equity research and other areas of the capital markets. The DCF model builds on the three-statement model to value a company based on the Net Present Value (NPV) of the business’s future cash flow. Recruiting in equities research is more haphazard and unstructured than in investment banking.
Although the major banks perform some undergraduate and MBA-level recruitment, many of their positions are filled on an “as required” basis. Equity research internships do exist, but they differ from IB and S&T internships in that they do not always lead to full-time offers. The equities research analyst will have a target price (or price objective) in the recommendations section, which shows investors where they estimate the stock to be in a year (usually). The terminology varies per bank, but popular examples are Buy / Overweight / Long, Sell / Underweight / Short, and Hold / Market weight / Neutral. One of the primary functions of equities research is to assess prior financial results and compare them to the advice provided or to the analyst’s predictions. Because stock performance is mostly determined by reality against expectations, an analyst must study and comprehend whether actual historical performances were below, at, or above market expectations.
Financial modeling takes practice, and we recommend browsing our specialized offering of professional financial modeling courses to become an expert. Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. As you see below, the LBO transactions require a specific type of financial model that focuses heavily on the company’s capital structure and leverage to enhance equity returns. In this section, the cash flows that were calculated above are being discounted by the calculated WACC. If you’d like to have the templates, you can always download our financial models.
Additionally, it provides an overview of the business, the industry it operates in, the management team, its financial performance, risks, and the target price. Major financial jobs tend to be concentrated in major financial hubs such as New York, Chicago, London, and Hong Kong. This is no different for equity research analysts and especially investment bankers, many of whom are paid to relocate to their firm’s home city.
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Both investment banking and equity research are well-paid professions, but over time, investment banking is a much more lucrative career choice. Equity researchers are responsible for identifying patterns with current market price changes and using this information to create algorithms that identify profitable stock investment opportunities. The equity researcher should be able to understand the idiosyncratic differences between various international markets in order to cross-compare domestic and foreign stocks. Equity researchers analyze stocks to help portfolio managers make better-informed investment decisions. Equity researchers employ problem-solving skills, data interpretation, and various other tools to understand and predict a given security’s behavioral outlook. Now, new regulation—specifically, the advent of MiFID II in Europe in 2018—is about to escalate these pressures.
If the candidate is new, the employer expects a working understanding of how to use Excel for equity calculations as well as awareness of other equity-related topics. Top-down forecasting begins with the industry (its size, growth, price, etc.), assesses how much market share a firm is expected to have, and then works its way down to revenue. This component of an equity research report will contain a wealth of information about industry developments and competition. This is where frameworks such as Porter’s Five Forces or a PEST analysis may help to guarantee that you’ve addressed all of the industry’s dynamics, such as politics, economics, social trends, and technical innovation, to mention a few.