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

An analyst's report values a company at Rs 500 per share using an assumed P/E of 25 on forward EPS. The report gives EPS estimate of Rs 20, but a reader finds the 25x multiple applied to Rs 20 equals the stated value, while the report also says the peer-average P/E is 15x without justifying the premium. Which is the most appropriate improvement for report quality?

The report should justify the 25x multiple against the 15x peer average, using growth or return-ratio evidence, and show how value changes with the multiple. The arithmetic of 25 times Rs 20 equals Rs 500 is fine; the weakness is the unsupported premium, and hiding peer data would reduce transparency.

  1. ARemove the peer average to avoid confusion
  2. BJustify the premium over the 15x peer multiple with growth or return-ratio evidence, and show sensitivity of value to the multipleCorrect
  3. CRaise the target price to Rs 600
  4. DReplace the P/E with a technical indicator

Explanation

25 x 20 = Rs 500, so the arithmetic is consistent. The weakness is the unexplained premium to the 15x peer multiple (which would imply Rs 300). A good report supports the premium with evidence and shows sensitivity. Hiding the peer data or changing the target does not fix the support.

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