Hedge funds manage pools of money on behalf of investors and buy or sell short marketable securities such as stocks. For typical long-short hedge funds that make bets on whether a stock will go up or down, there is a strong emphasis on fundamental analysis. Fundamental analysis involves a thorough understanding of both the qualitative and quantitative aspects of a company’s performance.
To understand the quantitative side of a company’s performance, analysts will typically build forecast models including a DCF. They may also use comparables analysis (described earlier in this article). For this reason, it is common for long-short hedge funds to hire analysts from equity research or investment banking backgrounds.