Are you interested in a career as a financial analyst? Maybe you’re thinking of hiring one?
We asked experts to discuss the primary roles of a financial analyst so that you will have a better understanding of what their skills sets are.
Lou Haverty, CFA
Financial Analyst, Financial Analyst Insider
I’ve worked over 16 years as a financial analyst in various roles including middle market capital markets and portfolio management for large commercial banks.
Within corporate banks, financial analysts work in partnership with relationship managers who source new deal opportunities for the bank.
When the relationship manager brings in a new deal, it’s the job of the financial analyst to vet the underlying business and objectively document the most salient aspects of the transaction. The final version of that document is then distributed to senior level managers to use as the basis for their final decision as to whether the bank will risk some of its capital to support that transaction.
Financial analysts frequently juggle multiple deals at one time and need to be able to operate under very tight deadlines. This means when looking at a new transaction, you need to be able to look at a very large amount of information and be able to synthesize it into the most important elements.
This requires you to look at financial information and draw conclusions about how multiple elements of business all contribute to changes in quarterly and annual financial statement trends. It’s not sufficient to say that profitability was down this year. Any outside observer can make that observation just by looking at a financial statement.
If you really want to stand out as a financial analyst, you need to be able to add context as to why profitability was down. It’s very similar to the role of a journalist. You should be thinking about all the possible questions someone might have about a potential transaction. Your goal should be to answer as many of those questions as possible in your final written product.
From the outside, it might seem like a bunch of number crunching. But the reality is that it’s much more nuanced than it might seem at first.
As a financial analyst, you are guiding the reader towards a conclusion. Your decision as to which elements of the business or the transaction that you choose to highlight in your final written product will greatly influence how readers will form their decisions. When you realize your written document could be influencing the decision to invest millions of dollars, you realize how important your role as a financial analyst is.
David Flores Wilson, CFP, CFA, CDFA
Senior Wealth Advisor and Financial Planner at Watts Capital | Editor, Planning to Wealth
A financial planning analyst works with people to put a financial plan in place that will help them achieve their financial goals.
This starts with understanding what’s important to that person and what financial goals they would like to achieve. The analyst also researches the person’s income, expenses, assets, liabilities, and savings patterns, and then builds a financial projection model that can help answer various key questions:
How much do I need to save to put my kids through college?
What age can I retire?
How big a home can I afford?
How long will my money last in retirement?
The analyst then puts together an investment plan that aims to achieve an investment return that will make the person’s goals a reality. The investment plan should aim to maximize returns with a diversified, low-cost portfolio while taking an appropriate level of risk for that particular person.
The analyst should also try to help the person maximize financial progress by putting together a plan to address other important areas:
- Appropriate debt management should balance minimizing interest costs while achieving the person’s goals.
- Tax planning can help lower the amount of taxes paid by implementing various tax strategies.
- Insurance planning will help avoid financial disaster in the case of disability, a death in the family or damage to property.
- Proper estate planning will ensure that the person’s assets will pass on to the next generation according to his or her wishes.
Chartered Financial Analyst | CEO of Affinity Financial Advisors
I spend a lot of time looking under the hood of different types of investments, sometimes spending hours on the phone with product managers to understand the underlying holdings, the structure of a fund, and how decisions are made about what to own.
If I’m looking at a publicly traded company, I analyze their financial statements. A pro tip is to always look at the footnotes. You’d be amazed at what you’ll find there.
Don’t rely on the numbers alone because they don’t tell the whole story. It can be easy to manipulate the bottom line using interesting accounting techniques. Then look at trends in the numbers.
Finally, research the decision makers. Is the CEO new? Is the company innovative? Are they part of an industry that is showing overall strength?
This is just the tip of the iceberg of what a financial analyst does. It’s a rewarding and challenging job, like finding buried treasure when you uncover a really unique fund or company!
Corporate Finance Executive
Financial analysts explain the past – they put historic data into context. Financial analysts predict the future – they create sophisticated models regarding possible future outcomes.
At its core, financial analysts make sense out of numbers. The good financial analysts are able to create a narrative around what the numerical data says. The really good financial analysts are able to make that narrative understandable for people who don’t have a ‘numbers background.‘
The exceptional financial analysts understand the need to go behind the numbers to fully understand what’s really happening and weave those non-numerical components into their analyses.
Head of Origination, Fundsquire UK
Being a financial analyst can mean a lot of things to a lot of people. However, independent of the particulars of any single job, one thing is constant – a financial analyst knows how to look at financial data and use it for decision making.
My area of specialization in financial analysis is related to lending due diligence. Might sound a bit complicated at first, but it’s actually quite straight forward. What I do is look at internal company data to understand the path the firm has been on financially and how it might be doing in the future.
As a lender, this is extremely important information for us to know, as the consequence of a company going down is that we will probably not recover the money we’ve lent it.
I love my job, mostly because it’s a bit like detective work. A company’s financials are filled with different types of clues as to what’s happened in the past and it’s fun to do a deep dive into the numbers and see what management has been up to.
Another great part about my job is that I get to interact with brilliant companies and visionary business people. People might think that financial analysts are some of those people that never leave dimly lit basement offices and slave over documents all day, but that’s definitely not true in my case.
I do peek into documents for a couple of hours a day, but most of my time is spent talking to clients and developing relationships. Trust is an important component of what we do – so we can’t be that easily outsourced by a robot, which is an added benefit.
Though being a financial analyst is a pretty sweet gig, there are challenges as well as perks. Different firms keep internal documents in different ways, and some are pretty out there. The biggest challenge in my job is that no two documents are ever the same, though they have the same title.
This is not just because they have a different structure (they sometimes do) but because they are based on assumptions. And different companies will have different assumptions. Take a cash flow forecast – an optimistic company that is looking to raise funding will probably highly overestimate its revenue and underestimate expenditure.
On the other hand, a more seasoned company that’s been bootstrapping its own growth will have more realistic figures, because it uses its cash flow forecast to inform business decisions, not to charm investors.
So, if you’re interested in becoming a financial analyst, it might be an awesome career option for you too. All you need is a good head for numbers, some people skills and a penchant for detective work.
Fractional CFO | Owner and Founder of AnalytIQ
A great financial analyst cannot only develop complex models but, if they are truly great at what they do, also provides critical insights for decision makers.
There are many good financial analysts but what separates the good and the great are the analysts that are able to acquire data from multiple systems. In the modern era of finance, it’s important to have a solid understanding of how systems work and how to extract data from these platforms and utilize them for their models.
Beyond just being able to extract data from various platforms, and creating models, it’s important for analysts to really understand what they are doing and see the bigger picture. This helps develop strategies and key insights into the levers of business, acquisition, or valuation.
James Stefurak, CFA
Managing Editor, The Invoice Factoring Guide
As traditional banks have reduced small business lending in the wake of Dodd-Frank, many financial analysts, like myself, assist newer ventures in improving operations. But many of the ideas won’t come from traditional financial statement analysis.
For example, a thorough analysis of a business’ customer mix (B2C versus B2B, etc.) often uncovers useful strategies. For B2C operations, identifying average selling prices and customer payment methods provides valuable insight. Adjusting prices and/or switching POS systems provide opportunities to reduce card processing fees, improving the bottom line.
And a high percentage of credit sales to large customers offer B2Bs a chance to improve cash flow and reduce credit risk by factoring delinquent accounts receivable.
Former Financial Analyst | Licensed Real Estate Broker, Yoreevo
The first thing to realize is the term “financial analyst” gets thrown around for a ton of different jobs. For example, at Citigroup, I was a financial analyst in the investment banking division.
My job basically consisted of some minor financial modeling in Excel and formatting presentations. Whenever someone wanted a change to the model’s assumptions or the presentation itself, that fell on me.
Meanwhile, at the two hedge funds, I was also a financial analyst but with a very different set of responsibilities. The only similarity was financial modeling in Excel but the goals of my models were very different.
At Citigroup, I was told by the higher-ups which assumptions to make. At the hedge funds, I was trying to get my forecasts for public companies to be as accurate as possible. The model was more of an afterthought though. I was also responsible for meeting with management, talking to industry experts, assessing risk, etc.
Basically, the goal was to figure out if certain stocks were going up or down and to trade accordingly.