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

An analyst's report values Sundaram Auto at a target price of Rs 900 using a P/E of 18 on estimated EPS. Which addition would most improve the report's transparency about how the target was reached?

Disclosing the EPS estimate, the reason for choosing the P/E multiple, and the key assumptions with sensitivity best improves transparency. It lets readers trace the Rs 900 target to its inputs and judge how reliable it is, instead of accepting a bare number.

  1. AA larger font for the target price on the cover page
  2. BDisclosure of the EPS estimate, the basis for choosing the P/E multiple, and key assumptions and sensitivityCorrect
  3. CA statement that the target is 'based on market sentiment'
  4. DRemoval of the assumptions section to keep the report short

Explanation

Transparency requires the reader to be able to trace the target price to its inputs: the EPS forecast, the multiple and its justification, and the assumptions. Formatting, vague statements or removing assumptions reduce transparency.

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