Anecdotally I’ve heard a lot of people in sell-side Equity Research say they use balancing figures in their balance sheets, usually in the shareholders equity line. Is this common practice? Does the buyside share the same approach?
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Based on the most helpful WSO content, using balancing figures in balance sheets, particularly in the shareholders' equity line, is indeed a practice observed on the sell-side. Sell-side analysts often prioritize creating models and reports that are visually appealing and easy to understand for their clients, which can sometimes lead to shortcuts like balancing figures. This approach aligns with the sell-side's focus on commercializing ideas and maintaining client relationships rather than purely fundamental accuracy.
On the buy-side, however, the approach tends to differ. Buy-side analysts are more focused on generating alpha and making investment decisions that directly impact portfolio performance. As a result, they are likely to put more effort into ensuring the accuracy and depth of their models, as their recommendations and performance are directly tied to their compensation and success. While they might use sell-side models as a starting point, buy-side analysts typically refine and adjust these models to align with their own investment theses and strategies, reducing the reliance on balancing figures.
Sources: Choosing Between Buy Side vs Sell Side in Equity Research?, What would you like to know about Equity Sales / Research?, Long term, concentrated, deep fundamental investing, Financial modelling on the buyside, Overview of the Equity research Industry
90% stocks no need for balance sheet if data/top line good. Especially true in tech because revenue beats translate to everything else and same for misses
90% of stocks no need for balance sheet if data/top line good. Especially true in tech because revenue beats translate to everything else and same for misses
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