Set out what goes into a company research report, including one that initiates coverage
The idea
A detailed company research report usually opens with a summary of the recommendation, target price and key reasons, followed by the investment thesis, a description of the business and its industry, financial analysis and forecasts, the valuation and how it was reached, and the main risks to the view, with disclosures of conflicts of interest. An initiation of coverage is the first full report an analyst publishes on a company and is typically the most comprehensive, laying out the model and assumptions that later, shorter updates revise as results and news arrive. A good report separates facts from forecasts, makes its assumptions explicit and shows what would change the conclusion.
A practice question
The section of a research report that briefly states why the analyst recommends buying or selling the share is the:
- investment summary or thesis — correct
- company descriptionWhy not: That section explains what the company does, not why the shares are attractive or unattractive.
- financial statement appendixWhy not: The appendix supports the analysis with data but does not state the recommendation's rationale.
The investment summary presents the recommendation, target price and the main reasons behind them, usually at the start of the report.
A harder one
A report gives a 12-month target price of 46 for a share trading at 40 and expects dividends of 1.20 over the year. The expected total return is:
- 15.0%Why not: Considers only the price change and leaves out the expected dividend income.
- 18.0% — correct
- 15.7%Why not: Divides the total gain by the target price rather than by the current price.
Expected total return = (46 − 40 + 1.20) / 40 = 7.20 / 40 = 18.0%.
The hardest tier
A broker rates a share Buy if expected 12-month total return is at least 12%, Sell if below −5%, and Hold otherwise. The share trades at 50, the target price is 55 and expected dividends are 1.50. The consistent rating is:
- Buy — correct
- HoldWhy not: Leaves out the dividend, giving 10% instead of 13% and dropping below the Buy threshold.
- SellWhy not: Inverts the calculation as (50 − 55) / 55, producing a negative return for a share expected to rise.
Expected total return = (55 − 50 + 1.50) / 50 = 6.50 / 50 = 13.0%, which meets the 12% Buy threshold.
In the app: 6 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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