Equity Research vs Credit Research – Know the difference!

Updated on April 30, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Equity Research vs Credit Research

If you are keen on making a career as a Financial Analyst, two areas stand out within finance – Equity Research and Credit Research. Equity Research deals with stocks and stock markets, while Credit Research looks at Credit and Bond Markets.

In this in-depth article, we compare and contrast the key differences between the two career choices – Equity Research and Credit Research.

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#1 – Equity Research vs. Credit Research – Conceptual difference

We want to start by helping you understand the conceptual difference between the two.

Equity Research

What do you understand by equity research? What is the concept of equity research? Let us get some information about the same.

  1. Equity research is about finding the valuation of a company, mind you, which is a listed company on the stock exchange.
  2. Once you decide on a company, you look at its economic aspects and stability and growth, which can be GDP, its rate of growth, its competition, and its size in the market or the industry.
  3. Once the economics is understood, you get into its financial statement or balance sheet from its historical performance.
  4. Now make the comparison of its past performance with its current performance (financial statement analysis)
  5. Based on the management result on the historical performance and the industrial competition.
  6. Using the equity calculation financial models, the company’s fair price is calculated.
  7. The equity researcher plays a vital role in filling the information gap between the buyers and the sellers.
  8. The main job of an equity researcher is to spend a lot of time and energy researching these stocks.

Summarizing the equity research, we can say that it researches the stocks or the shares price of a registered company.

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Credit Research

However, credit research is more about bonds and interest rates. It is much more technical and complex in comparison with equity research. Credit is also categorized under the fixed income of the company.

  1. Credit research is based on five fundamentals starting with the rivalry within the industry. You can also call it a competition between the companies of the industry; the second fundamental is the bargaining power of the customer and then comes the bargaining power of the suppliers, then we have the threat of the substitute products, and finally, we have the threat of new product launches or new entries.
  2. The analysis of the issuer is the next job of a credit researcher. When you study the issuer’s credit analysis, you include the study of the issuer’s financial statement. Here the financial flexibility and liquidity are crucial because bonds and debentures are the most liquid products for investors. The critical factors of study and analysis include a rating of the company, the net debt of the company, earnings of the company before interest, taxes, depreciation, and amortization for the last 12 months or one year. You can also call it EBITDA, EBITDA interest coverage, net debt on EBITDA, Funds from the operations upon net debt, debt upon capital, and finally, a five-year credit default swap or CDS. However, the considerations differ from the industry.
  3. After considering fundamentals and doing the issuer’s analysis, it is also vital to do their security analysis. The next consideration is analyzing the views of specific issues, for example, bonds or loans. Examining the capital structure and the process of capital structuring is crucial for it will help you understand the position of the company in the resilience stage, then a shock stage, and finally, the recovery stage. In the current market, the level of bank debts has increased in comparison to unsecured debts therefore during the time of deep recession the credit analyst expects a lesser recovery rate in the downturn. Hence you need to understand the problems arising from the bond’s documentation.
  4. Any credit research is to add value in various ways to different sectors and different security selections to avoid black holes and defaults and high-value generation. The researchers use the traffic light system to recommend investing in the bond documentation. For example, a green light is given to issuers whose operations are considered to be least at risk for investors. In contrast, yellow light is given to issuers whose bonds are comparatively a little riskier than the green issuers. In contrast, the red light issuer is the riskiest in the market for investing.

To summarize credit research, we can say its analysis revolves around the documentation of the issuer’s bonds.

#2 – Equity Research vs. Credit Research – Career Pre-requisites 

We can give you an idea about what you require to become one of these professionals.

Equity research

  1. To start with, educational qualification is essential. To become an equity researcher, you first need to have a bachelor’s degree in finance, economics, or other related fields. MBA and CFA have added qualifications.
  2. You require very strong analytical skills understanding of relevant finance – valuations, DCF, Financial Modeling, Report Writing, mathematics, and accounting techniques.
  3. You need to be very good with a verbal and written communication that will help you communicate ideas fluently and effectively because you need to interact clearly with your clients.
  4. It would be best if you were good with Microsoft Excel, PowerPoint presentations, and you must have experience in handling Bloomberg plus.
  5. Some basic criteria are good time management skills, clear priority understanding, and being able to handle multiple projects simultaneously.

Credit Research

Candidates interested in this profile should have a certain set of interests and educational backgrounds. We have listed some of the prerequisites required in a candidate for the captioned profile below.

  1. It would be best if you had a bachelor’s degree in finance, economics, or other related fields. Degrees such as CA, ICWA, CMA, MBA, and other postgraduate degrees in finance are an added benefit to this course.
  2. It would be best if you were interested in performing credit appraisals and practicing the course’s best practices.
  3. Interest in generating better trade ideas and identifying the problem loans in the financial statements of the issuers should interest you as a credit researcher.
  4. You must be interested in building and maintaining various credit risk models.
  5. You should be able to and be interested in amplifying and monitoring credit systems.
  6. One of your most important roles will be analyzing and studying the issuer’s debt and loan portfolio performance.
  7. It would be best to streamline quantitative research for the rate of interest or ROI.
  8. You will have to enhance the Basel-based rating system that will be only internal.
  9. Of course, if you are a credit analyst, you will have recommendations related to lending and investment-based.
  10. Finally, you will have to design credit strategies and credit portfolios.

#3 – Equity Research vs. Credit Research – Employment Outlook

Equity research

As the market has been growing, so has the scope of employment; hence the market, in general, is expecting massive growth in the demand for equity researchers. Some of the biggest employers for equity researchers are JP Morgan, Morgan Stanley, Credit Suisse, Citi, Barclays, HSBC, etc. To mitigate risk, the use of quantitative models of strategies is becoming very important. Mostly, companies have been focusing on quantitative data over qualitative data as financial information has become essential to solving problems.

Credit Research

The requirement for the position of credit analyst position has been significantly less and has been decreasing since the year 2004. The dip has been more than 6% globally, with an average dip of 1.1% annually. However, with the improving market, the demand for the captioned profile is expected to increase. The market is expecting more than 21,000 openings for the designation of credit analysts. It means new positions for the job role of credit analysts will increase by 4.4% annually by the year 2018. Companies hiring credit analysts are Deutsche Bank, Barclays Standard Chartered Bank, HSBC, CITI, etc.

#4 – Equity Research vs. Credit Research – Salary

Let us give you an idea of what you should expect from the career you choose.

Equity Research

As an equity researcher, you can earn

A junior analyst that is the start of your career, you will start not less than between $45000 to $50000 annually as your base salary. Compensations and allowances change with the companies.

Associate: as you grow in your experience, your wages increase with your experience. You may draw anywhere close to $65000 to $90000 annually, along with about 50 to 100% bonus.

As a senior analyst, your salary per your annual package may increase to a basic compensation of $125000 to $250000, including a bonus anywhere close to 2 to 5 times your basic salary.

Credit Research

With this course and only a bachelor’s degree, you can start your career with a handsome average package of $67000 annually.

#5 – Career Pros & Cons

Equity Research

Pros

  • The start package and the future package seem very good and healthy.
  • Various career options are open for an equity researcher, for he can either work as an employee or as a professional.
  • Has in an out idea of the market

Cons

  • Spends his life that is all his time and energy in stock research.
  • His job includes a lot of responsibility as a little calculation mismatch can cost the companies and his investors a lot, resulting in his career loss.

Credit Research

Pros

  • Great job growth and opportunities are expected in the coming 5 to 6 years.
  • Great salary package to start with and also massive companies to hire.
  • Different job opportunities to choose from, along with the option of industries.

Cons

  • Might have a very hectic job profile with spending more than 40 hrs a week at work.
  • Again a very risky job or a job with very high responsibility for calculations must be accurate.

#6 – Equity Research vs. Credit Research – Work-life balance

Equity Research

Very hectic job!!! An equity researcher starts his day at 7.00 am, that is before the market starts at 9.00, starting with morning meetings right up to following the market, from the client request, discussion to the closure of the market, and even after the market closes, working on the research pieces for publications. An equity researcher finishes his job from 7.30 to 8.00 in the evening, spending more than 12 hours at work. The job here is quite tough and demanding.

Also, checkout Investment Banking Lifestyle just for comparison.

Credit Research

However, a credit researcher’s job does not work following the market; hence he need not report working that early in the morning. Yet his job is not that easy as he needs to research the data and financial status of companies or issuers of bonds. His research work does require a lot of time. Even a credit researcher spends more than 40 hours a week at his workplace.

Both the jobs are equally demanding as they involve substantial financial risks, for a little calculation mistake can cost them a lot of financial loss and their careers.

What to Choose?

Equity Research

The job of an analyst sounds like a dream job for candidates passionate about money and the market. However, it isn’t an easy job to do. If you are willing to spend most of your life working surrounded by many challenges, you must consider this as your career. It provides you amazing growth both career and money-wise; it also provides you excellent exit opportunities.

Credit Research

If you are ready to do a stressful job and play with facts and figures of companies, make decisions, predict interest rates, and give recommendations, then this is your job. Remember that this job is not an easy job or a job that can be taken casually. It is a demanding job that needs a lot of both hard and smart work.

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Reader Interactions

Comments

  1. Ruiz Harper says

    Thanks for letting me to know the difference between Equity research and Credit research. This has really helped me. Would also like to tell me what are the qualifications required for credit research analyst jobs?

    • Dheeraj Vaidya says

      Thank you so much and I am happy to know that this has helped you. For credit research analyst job you require certification on credit rating, Commerce graduates can also opt for this job, most of the organisations prefer post graduates candidates with relevant experience of one or two years.

  2. Perkins Carline says

    Great post. Excellent post for those who are willing to make a career as financial analyst. Thanks for sharing this blog. Can you tell me what are the skills required if I want to do an equity research job?

    • Dheeraj Vaidya says

      Thanks for you note. There are many skills that you must know for an equity research job – First is the financial modeling using excel, financial analysis and valuation skills are required, you must know business analysis knowledge, you must have the capabilities to write a research reports and give presentations and the last one is correct judgment.

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