4.5. Develop and Communicate Conclusions/Recommendations

#cfa-level-1 #reading-22-financial-statement-analysis-intro

Communicating the conclusion or recommendation in an appropriate format is the next step. The appropriate format will vary by analytical task, by institution, and/or by audience. For example, an equity analyst’s report would typically include the following components:10

  • summary and investment conclusion;

  • earnings projections;

  • valuation;

  • business summary;

  • risk, industry, and competitive analysis;

  • historical performance; and

  • forecasts.

The contents of reports may also be specified by regulatory agencies or professional standards. For example, the CFA Institute Standards of Practice Handbook (Handbook) dictates standards that must be followed in communicating recommendations. According to the Handbook:

Standard V(B) states that members and candidates should communicate in a recommendation the factors that were instrumental in making the investment recommendation. A critical part of this requirement is to distinguish clearly between opinions and facts. In preparing a research report, the member or candidate must present the basic characteristics of the security(ies) being analyzed, which will allow the reader to evaluate the report and incorporate information the reader deems relevant to his or her investment decision making process.11

The Handbook requires that limitations to the analysis and any risks inherent to the investment be disclosed. Furthermore, the Handbook requires that any report include elements important to the analysis and conclusions so that readers can evaluate the conclusions themselves.


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