Introduction to Equity Analysis


I attended this half-day course in the afternoon of February 22nd in Central London. The material here is definitely educational even if just to reveal the gulf between the research that I do and the research that I could be doing. The fact is that professional analysts can spend weeks digging into a single stock, with access to tools such as Bloomberg, and this isn’t wholly practical for individual investors.

Nevertheless Steve Clapham does a good job of showing how be approaches the analysis of a company and it feels like you’re getting to look over his shoulder as he goes about the task. Unlike his accounting course the material here doesn’t require you to be an expert in balance sheets or any other part of the accounts. Instead there’s an assumption that you have some familiarity with the tools used to value companies and assess their investment potential.

While on the course I made as many notes as I could as there’s too much to take in on the day. From these I’ve extracted the major points to try and provide a flavour of the material. In reality Steve covers a lot more content than these headlines suggest and I’m sure that he’s happy to answer any questions.

The structure of this course is available here and I’ve used this to lay out a selection of interesting points which came up on the day:

Enterprise Value

Ignore DCF, CAPM etc. as of little practical use to investors
EV is better for peer group comparison
Use debt at market value not face value

Stock Market Value

P/E – definition of EPS is the difficulty
EV/EBITDA or EV/EBIT – use at least one EV metric for balance
EV/CE – good for property companies and similar

Analysis Basics

Look at LFL revenue trends and vs peers
Working capital ratios – very important
Valuation per unit – very useful for certain sectors

Finding the Ideas - how to find winning stock ideas

News – temporary hits to profit are often extrapolated into the future
Thematic investing - can be structural or tactical
RNS – look for a more positive update than was expected

Testing the Hypothesis - check that this is an idea worth pursuing

A 30-60 minute quick check
Liquidity – can you really buy and sell in a useful size?
Question to ask: Why is the share mispriced and why has the market missed this?

Understanding the Industry - how to understand the business model

Need some context to see the competitive pressures and position relative to peers
Who are the main players?
Each industry has its cycle so work out what it is

Company Specifics - drilling down from industry to company

Can you write a simple, informative description of what the company does?
Does the company have a purpose? Is it useful to people?
Share price history – can you explain the moves over the last 5 years?


Managers should be able to explain what has gone right and wrong with their business
Are the NEDs actually independent?
High management turnover is a bad sign

Final Decision

Have an investment thesis – what are the risks and potential outcomes?
Press articles – look for something on the company maybe from the trade press

NB Any errors and omissions in this summary are mine alone.

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