Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

An analyst values Kaveri Textiles at a target price of ₹360 using a target P/E of 18 on forward EPS. In the report, which disclosure is most essential for the reader to be able to evaluate the target price?

The forward EPS estimate and its key assumptions, such as volume growth and margins, must be disclosed. Here the target of ₹360 at 18 times implies EPS of ₹20, and readers can judge the target only by knowing how that EPS was derived.

  1. AThe analyst's personal preference for textile stocks
  2. BThe forward EPS estimate and the key assumptions behind it, such as volume growth and marginsCorrect
  3. CThe number of pages in the report
  4. DThe list of other companies the analyst's firm has no relation with

Explanation

Target price = P/E × forward EPS, so EPS is 360/18 = ₹20. The reader can only evaluate the target if the EPS estimate and the assumptions driving it (volumes, margins) are disclosed. The other options do not help assess the valuation.

Did you get it right without looking?

One question tells you little. A timed set on Qualities of a Good Research Report shows your real accuracy, how long you take and where you lose marks.

Practise Qualities of a Good Research ReportFree diagnostic mock

More Qualities of a Good Research Report questions