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SELL SIDE PERSPECTIVE: HOW TO WRITE A RESEARCH REPORT Due date: 11/21/11 Linh Le ____________________________________________________________________________ SUMMARY A lot of people

will see the report make sure accurate, and double check There are 4 topics: financial modeling, valuation, management meeting and writing the report o Financial Modeling: must have drivers ( what drives price down or up, what drives the companys revenues?), must have enough details but not so complicated ( model should be more dynamic and flexible), must foot (check whether expectation of revenues in your model is similar to historically number in company financial statement), must be easy to update ( model should be very quick and concise, must be able to draft quick notes to clients). - 1st step: Understand the company: read all the 10ks ( 2 years), 10qs, company investor presentations, company quarter release ( updates, this is guidance and forms your expectation). Figure out the company business models and drivers ( statistically what influences revenue change forward), figure out what information the company will give you on an ongoing basis ( keep update) and read and think to analyze. -2nd step: build the model, how to compute revenue line , form expectation of gross margin and cost of goods sold, how to compute revenue trend, GM trend over time, can also use historical financial statements to form expectation of future. There should be concise and accurate presentation of income statement, cash flow statement ( free CF computation) and balance sheet. EPS ratio is critical to every investor. - Requirement: must get the model straight, this is the most important part of writing the research report and the model drives everything. o Valuation: using historical multiples, comps, DCF, earning multiples, EBITDA - Must specify which methodology you are going to use, simple is the best and you should not go off from the mainstream methodology. o Management meeting: only do the management meeting after you have modeled and valued the company. You will certainly need to speak to the CFO or head of IR to get clarification in order to accurately model the company. However, it is imperative that you have all the model drivers clear before meeting management. - How to have a productive management meeting: strategic questions are key-

margin expansion, competitive threats, and Porter 5 forces ( supplier power, threat of substitutes, buy power, barrier entry and rivalry). Writing the report: concise is always better, up front with valuation and drivers, need to triple checked for accuracy - Page 1: EPS from earning model, highlight why I should buy/ sell/hold this stock and what the story is, include share price chart, market profile table, and all the information on the front page to make a decision( investors rarely read the entire report). - Page 2: Investment summary ( Thesis), Share price history with significant events, valuation ( lay out valuation methodology), - Page 3: business description (tell about the business and history section), industry overview and competitive positioning and Porter 5 forces - Page 4: Financial analysis (how are you modeling the company, outline your drivers, includes earning, cash flow statement and balance sheet, estimates expected earning, cash flow) and analyze Investment risk ( what could go wrong and what is the downside?) -Page 5,6,7: Paste in the model from excel- Income statement, cash flow statement and other exhibits/ drivers - Some others added to the report: regression on model driver( illustrate significance), catalysts (why will the stock go up soon? Cannot always just be a valuation call?), Management Bios (good information on the capital allocation) and free cash flow analysis (where has the cash flow gone through the years? Has it added value?).

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