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

An analyst's report on a listed company uses a target price based on a P/E multiple. Which disclosure is most essential for a reader to evaluate the reasonableness of that target price?

The reader needs the EPS estimate, the P/E multiple applied and the reasoning for choosing that multiple. These are the inputs of the target price, so disclosing them makes the valuation transparent, replicable and open to assessment by the reader.

  1. AThe analyst's seating location in the research office
  2. BThe EPS estimate and the P/E multiple used, along with the rationale for choosing the multipleCorrect
  3. CThe number of pages in the report
  4. DThe date the analyst joined the firm

Explanation

A target price is derived from the EPS estimate multiplied by the multiple. Without both inputs and the reasoning for the multiple, the reader cannot assess or replicate the valuation. The other options have no bearing on the valuation.

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