WCM Educational Recap #7 — Introduction to Equity Analysis

Western Capital Markets
5 min readDec 10, 2022

Recapped by Naveed Pirouzmand

Welcome back to another WCM blog recap! This week’s educational illustrates what equity analysis is and how it is conducted. The components of this educational will be helpful for the upcoming equity report challenge. We highly recommend that everyone signs up for this challenge to improve your equity analysis skills and potentially win a cash prize. If you are interested, please use the link here to sign up: https://tinyurl.com/bdcnx78r

Week In Review

This week we reviewed how the Canadian EV market is threatened by US tax breaks. The tax break offers up to $4,000 on used EVs put into service in 2024 in the United States. This eliminates tax credits for vehicles not assembled in North America. Canada is concerned that this tax break will adversely impact the country’s own EV sector, which is closely integrated with the United States. The fall out for Canada Equivalent to a 34% tariff on Canadian made EV’s.

What is Equity Analysis

The process of evaluating a public company and determining the appropriate value (price) to assign it.

Macro Industry View

  • How will decreased consumer spending affect Amazon’s sales during the holidays?
  • Will Chinese factory disruptions hinder Apple’s supply chain?
  • Will a drop in marketing spend allow Trade Desk to acquire market share?

Company Specific Theses

  • When will Meta decrease its capital expenditures into the Metaverse
  • Can Netflix successfully roll out its new ad-tier subscription?
  • How will Bob Iger modify Disney’s streaming platform to generate greater free cash flow?


  • Does Pfizer’s discounted cash flow imply a higher share price than it is currently trading at
  • Is FedEx trading at a lower multiple than its peers?
  • Should Salesforce be valued using Price/Earnings or EV/EBITDA?

Incorporating each of these three factors will allow for the most comprehensive evaluation of a company.

Why is Equity Analysis Important

Recruiting Benefits

  • Attaching work product can help you stand out from other applicants and improve your response rate
  • Recruiters want to see a passion for finance/investing
  • Developing key skills will help during technical portion of interviews; may include questions on financial statements, valuation, market trends, etc.

Key Skills Developed

  • Ability to accurately analyze three financial statements
  • Understanding of fundamental valuation methodologies
  • Improved knowledge of general market/industry trends

How to Get Started

  • Stock pitch competitions
  • Write about an interesting market trend
  • Develop your own equity report

Research and Resources

Yahoo Finance

Yahoo Finance delivers daily market coverage and real-time market data to investors and analysts. When searching up an equity, there are a few sections that you can go through to help you understand the financial statistics of the business.


  • Displays key information and statistics
  • Find: Share Price, Market Cap, Beta, EPS, P/E Ratio


  • Visual representation of company’s past share price
  • Change date range (1M, 1Y, 2Y, 10Y, etc.) and compare with other business/indices
  • Find: Historical Share Price, Past Growth Trajectory


  • In-depth KPIs and ratio
  • Details on performance, dividends, share statistics, management effectiveness, etc.
  • Find: Market Cap, Enterprise Value, Relevant Multiples, Total Cash & Debt

Historical Data

  • Daily information on past trading days
  • Includes open, close, volume, etc.
  • Useful for making stock charts
  • Find: Downloadable Excel Files


  • Information on management and a written overview of the company
  • Find: Key Executives, Company Description

Reading Financial Statements

If you want to follow or invest in a U.S. public company, you can find a wealth of information in the company’s annual report on its Form 10-K (annual report) and Form 10-Q (quarterly report). Each report is long, but it is important to go through the report in detail as well as look through past reports to see how the company has evolved over time. When screening for companies, these are the important sections to look at to understand the business’ dynamic internally and in the market.

Business section

  • The business section goes over what the company sells, the profile of the business, the markets and distribution, and competition
  • Management Discussion and Analysis (MD&A)
  • This section is where executives analyze the company’s performance
  • The section can also include a discussion of compliance, risks, and future plans, such as goals and new projects

Financial Statements

  • This section will show you the three financial statements for the reporting period

Theses and Valuation

To come up with a thesis for an investment, you must develop a differentiated view from the market. This is considered “Second-Level Thinking”, which Howard Marks explained in this book The Most Important Thing.

“There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking — a way of thinking that’s different from that of others, more complex and more insightful”

Developing the Thesis

  • When choosing a company or an equity, we must first differentiate the idea of a good business and a good investment
  • A good business might not be a good investment because the valuation of the business might already be realized and there is not much potential upside for the investment

Example thesis using second-level thinking using Apple:

  • Market View: Apple’s iPhone sales are slowing down, signaling an overall decrease in demand for their core products and declining revenue growth moving forward
  • Variant View: Weak consumer spending and supply chain issues lead to below expected iPhone sales; Apple’s product ecosystem provides a strong moat, allowing the company to bolster revenue growth through its peripheral offerings


Comparables Analysis

Comparable company analysis is a way to determine how much a company is worth by comparing it to other companies of similar size in similar industries. It compares market data and financial data to find the mean and median valuation across a comparable set.


  • Be able to justify all the business in your comparable set and why they are comparable to the equity you are looking at
  • Focus on using relevant multiples; certain industries use specific multiples to value their businesses, for example, a common consumer retail multiple is Price/Earnings
  • Avoid including outliers that can skew the data up or down

Discounted Cash Flow (DCF)

Discounted cash flow (DCF) refers to a valuation method that estimates the value of an investment using its expected future cash flows.


  • Only project for a short period of time (reasonable projection periods can range from 3–5 years)
  • Incorporate your theses as drivers in your model (e.g. customer growth -> higher revenue -> greater UFCF)
  • Conduct sensitivities on your perpetuity growth rate/exit multiple and WACC amongst others
  • Once complete, use a football field to visually show implied share prices from different valuation methods
  • It is important to compare your valuations because valuations by themselves are NOT conclusive, only supportive
  • Multiple valuations support a stronger conclusion

Equity Report Challenge

WCM is hosting an equity report challenge for students to learn about analyzing public equities and learning about the due diligence process. For the challenge, you must write a short equity report on any company of your choice, covering an overview of the business, and internal and external analysis, and your own investment theses. This is a great opportunity to practice valuation methods and excel modelling ahead of stock pitch season in second semester. You will be able to ask any questions you may have to the WCM executive team and get feedback from them as well before submitting your equity report.


  • Dec 11th: Interest form due
  • Dec 12th: Receive further information on the challenge
  • Jan 11th: Tentative submission deadline
  • Jan 18th: Receive feedback and winners announced


  • First place $50, second place $25, Third Place $15



Western Capital Markets

WCM’s mission is to educate, develop and provide real-world opportunities for members of the Western community to explore their interest in finance.