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CFA Level I · CFA Level I Exam · Equity Analyst Research Reports

An analyst's equity research report contains a valuation section. Which of the following is most likely a feature of a well-constructed valuation section?

A well-constructed valuation section explains the valuation model, the key inputs and assumptions, and why the model fits the company. This transparency lets readers assess and replicate the conclusion. Hiding the method or using only favorable assumptions undermines the objectivity and credibility of the report.

  1. AIt states the target price without disclosing the method used
  2. BIt explains the valuation model, key inputs and assumptions, and why the model suits the companyCorrect
  3. CIt uses only the most favorable assumption set to support the recommendation

Explanation

A good valuation section lets readers understand and replicate the conclusion. It should explain the model chosen, the key inputs and assumptions, and the reasoning for the choice. Hiding the method or presenting only favorable assumptions reduces transparency and objectivity.

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