Skip to main content

Equity Research - The Process

In this post I have listed down some STEPS. TIPS to be considered while doing Equity Analysis.I have assumed that the reader is well aware of Fundamental &Technical Analysis along with Valuations -

 

1. Separate the business from the balance sheet

  1.       How is the business capitalized? Is it sustainable? Is it relatively efficient/optimal?
  2.        What are the assets worth? Liquidation value and reproduction value
  3.        Are there any “hidden” assets or liabilities?
  4.        Excess cash, real estate, LIFO, etc.
  5.        Pension, legal liability, litigation, operational malfeasance, funding/liquidity puts, etc.

2. Separate the business from the cash flows

  1.       What are the cash flows saying, regardless of the broader business stereotypes/assumptions?
  2.       How much cash can be taken out of the business every year? Owner’s earning (net income plus DA minus capex) normalized and over time
  3.        Earnings yield (EBIT/TEV) and ROIC (EBIT/(WC+fixed assets))
  4.        What are the capex requirements? With regard to inflation? Depreciation?

 

3. What is the business’s competitive situation? How good is management?

  1.        What could kill the business? What disrupts the underlying fundamentals?
  2.        Competition/moat
  3.        Cost structure
  4.        What are incremental margins? How attractive is the compounding opportunity?
  5.        Is capital being allocated properly? Investing in the business vs. returning capital to shareholders
  6.        Are the company’s end markets stable/shrinking/growing? Susceptible to rapid (technological) change?

 

4. Other considerations

  1.        Market perceptions
  2.        Quality of management and alignment of interests
  3.        Is this opportunity worth a punch on our punch card?

5. Psychological factors

·       Think in terms of the “psychology of misjudgment” and common biases

 

6. Where are we in the cycle?

  1.       Where are we in the economic cycle?
  2.        Where are we in the cycle for risk assets?
  3.        Where are we in the industry cycle applicable to this company?

 

7. Portfolio composition

  1.       Target 15-25 individual (i.e., diversified or uncorrelated) investments1
  2.        Size constraints
  3.        Portfolio liquidity
  4.        Ability to withstand pain
 

Some more TIPS for conducting research –

 

1.     Focus on original source documents, working from in to out

·       SEBI & ROC fillings in reverse chronological order

·       Press releases and earnings calls/transcripts

·       Other public information

·       Court documents, real estate records, etc.

·       Industry publications

·       Third-party analysts

 

2.     Sell-side research only as a consensus-checking exercise

3.     Research the company’s competitors with the same process

4.     Research and speak to competitors, (former) employees, and people in the supply chain

5.     Estimate valuation before looking at market valuation

6.     Valuation – What would a rational, long-term, private buyer would pay in cash today for the entire business?

·       Asset value

·       Earning power

·       if EP >NAV, then franchise value

·       Growth value

·       Requirements

7.     Large, well understood margin of safety

8.     Reinvestment opportunities for capital in the business

9.     Quality, ownership stake, and shareholder-orientation of management

10.  Ability to bear pain, both the company’s and my own

 

Munger’s “Four Filters”

1.     Understand the business

2.     Sustainable competitive advantages (aka, favorable long-term economics)

3.     Able and trustworthy management

4.     Price that affords a margin of safety (aka, a sensible purchase price)

Labels:

Comments

Post a Comment

Popular posts from this blog

Why Entity Structuring is the Cornerstone of a Successful Indian Family Business ?

Pranam  When it comes to Indian family businesses, most of the focus tends to be on growth, succession, and stability. Yet one fundamental aspect often overlooked is Entity Structuring —how your business is set up legally, financially, and operationally. At Veer Consultancy Services (VCS) , we help family businesses not just plan , but execute optimal entity structures that stand the test of time.   Why Does Entity Structuring Matter So Much? ü    An intelligently designed structure can: ü    Minimize tax liability ü   Ensure smooth succession and estate planning   ü   Separate risks   ü   Improve fundraising ability ü   Maintain control in the hands of promoters ü   Protect and grow family wealth   ü   Facilitate governance and reduce internal conflicts   A Proven Approach: HoldCo – AssetCo – OpCo Structure At VCS, we often advise family businesses to adopt a three-tier...
Post a Comment
Read more

From Risk to Resilience: The CERT-In Cyber Audit That Could Save Your Business

According to CERT-In, there is a 30% YoY increase in cyber incidents involving small and medium businesses. The Indian Computer Emergency Response Team (CERT-In)  has issued a crucial directive from  September 1, 2025 for improving cyber resilience of the MSME sector in India. As per the directive, all MSMEs must undergo an  annual cybersecurity audit  by Cert-In empanelled auditors. This regulation ensures that even the smallest organisations are aligned with national cybersecurity standards — transforming digital security from a choice to a necessity. What is the CERT-In Annual Cybersecurity Audit? The Computer Emergency Response Team – India (CERT-In) has established a framework of cybersecurity obligations for organisations operating digital systems in India. One of the key components is the  annual cybersecurity audit  — requiring organisations, including many in the MSME segment, to have their cybersecurity posture assessed and verified on a yea...
Post a Comment
Read more

10 Unignorable Signs Your Family Business Needs a Professional CFO (Before It's Too Late)

  प्रणाम , Running a family business or SME in India is a matter of pride. It’s not just about profit—it’s about legacy, relationships, and responsibility. But many family enterprises, despite their hard work and growth, hit a ceiling. The reason? Finance is often treated as bookkeeping, not strategy. As a Karta or leader of an Indian family business, you wear many hats. You’re the chief visionary, the operations head, the client relationship manager, and often, the de facto finance manager. You’ve gotten this far on grit, intuition, and the trusted circle of family. But here’s a hard truth: the complexity of modern business can no longer be run on Excel sheets and gut feeling alone. The transition from a successful family-owned shop to a scalable, legacy-building enterprise requires one critical role: a strategic Chief Financial Officer. The question is, how do you know when you need one? If you see these signs, the time to act is now. 1. You’re Flying Blind Without a Fina...
Post a Comment
Read more