What Does a Financial Analyst Do? (Explained by 8 Financial Analysts)

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

Lou Haverty

Financial Analyst, Financial Analyst Insider

Financial analysts frequently juggle multiple deals at one time

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

David Flores Wilson

Senior Wealth Advisor and Financial Planner at Watts Capital | Editor, Planning to Wealth

An analyst works with people to put a financial plan in place

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.

Victoria Bogner

Victoria Bogner

Chartered Financial Analyst | CEO of Affinity Financial Advisors

Analyzing financial statements

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!

Dave Bookbinder

Dave Bookbinder

Corporate Finance Executive

Financial analysts predict the future

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.

Alex Kaschuta

Alex Kaschuta

Head of Origination, Fundsquire UK

A financial analyst knows how to look at financial data and use it for decision making

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.

Francisco Castro

Francisco Castro

Fractional CFO | Owner and Founder of AnalytIQ

They provide critical insights for decision makers

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

James Stefurak

Managing Editor, The Invoice Factoring Guide

Assists newer ventures in improving operations

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.

James McGrath

Former Financial Analyst | Licensed Real Estate Broker, Yoreevo

Figuring out if certain stocks were going up or down

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.

Frequently Asked Questions

How Can One Become a Financial Analyst?

To become a financial analyst, one typically needs a strong background in finance, economics, or a related field, as well as experience in data analysis and financial modeling.

Many financial analysts have a bachelor’s or master’s degree in finance, economics, or a related field and may also hold a professional designation such as Chartered Financial Analyst (CFA).

In addition to formal education, practical experiences, such as internships or entry-level positions in finance, can help build the skills and knowledge needed to become a financial analyst.

What Are Some Common Career Paths for Financial Analysts?

Financial analysts can follow various career paths after working in the field for a few years. Some common career paths for financial analysts are:

Portfolio Manager: A portfolio manager is responsible for managing investments for clients or for the organization they work for.

Risk Manager: A risk manager is responsible for evaluating and managing financial risks in an organization.

Investment Banker: An investment banker advises and assists clients who wish to raise capital or make investments.

Financial Advisor: A financial advisor provides advice to individuals or families on various financial topics, such as investments, retirement planning, and insurance.

Financial Manager: A financial manager is responsible for the overall financial management of an organization, including developing budgets, managing financial resources, and preparing financial reports.

These are just a few examples of the many career paths financial analysts can take. A financial analyst’s career path depends on their interests, skills, and experience.

How High Is the Demand for Financial Analysts?

The demand for financial analysts is strong and is expected to continue to grow in the coming years. As the economy continues to grow and financial markets become more complex, the need for individuals with the skills and knowledge to help businesses and organizations make informed financial decisions is increasing.

The rise of technology and the increasing use of data analytics in finance are also driving demand for financial analysts who can analyze and interpret large volumes of financial data.

What Are the Benefits of Becoming a Financial Analyst?

The financial analyst profession offers several professional and personal benefits.

Financially, it can be:

• a well-paying and secure career with good growth potential • also offers the opportunity to work with various clients and organizations
• an opportunity to make a real difference in the financial well-being of individuals and businesses

On a personal level, becoming a financial analyst can:

• provide a sense of accomplishment and fulfillment by helping others make informed financial decisions
• offers the opportunity to learn and grow as the financial world evolves constantly

Can Financial Analysts Work for Themselves?

It is possible for financial analysts to work for themselves, either as freelance consultants or by starting their financial advisory firm.

Self-employed financial analysts may work with various clients, including individuals, businesses, and organizations.

To be successful as a self-employed financial analyst, one must have:

• a strong network
• good marketing skills
• a deep understanding of the financial industry

Is It Possible to Work From Home as a Financial Analyst?

Yes, working from home as a financial analyst is possible, especially in this day and age where remote work is becoming more common.

Many financial analyst tasks can be done remotely if the analyst has access to the necessary tools and technology. However, the specific arrangement may vary depending on the company and the nature of the work.

Can a Financial Analyst Work Internationally?

Yes. Many financial institutions, investment firms, and corporations have operations in multiple countries, and financial analysts may have opportunities to work in these locations.

However, the specific requirements and opportunities to work internationally depend on the organization and the individual’s qualifications and experience.

Are There Challenges That a Financial Analyst May Face?

Financial analysts may face several challenges in their role. A common challenge is pressure to make accurate predictions and provide sound financial advice. This can be particularly difficult in a fast-paced and rapidly changing economic environment.

Financial analysts also face the challenge of effectively communicating complex financial information to clients and stakeholders who may need a background in finance. In addition, financial analysts may face ethical dilemmas such as conflicts of interest in their work.

How Important Is It for a Financial Analyst to Stay Current on Market Trends and News?

A financial analyst must stay abreast of market trends and news. The financial industry is constantly evolving, and financial analysts must be aware of the latest developments to provide accurate and informed financial advice.

This includes:

• reading financial news and reports
• following relevant industry organizations and trade associations
• participating in ongoing training and professional development

Financial analysts who stay up-to-date on market trends and news are better able to make informed decisions and provide valuable insights to their clients.

What Kind of Technology Do Financial Analysts Use?

Financial analysts use a variety of technology tools to help them analyze and interpret financial information. These include financial software such as Excel and Bloomberg, as well as data analysis tools and databases.

Financial analysts may also use various online resources, such as financial news websites and social media, to stay up-to-date on market trends and other financial information. They can also use virtual collaboration tools such as video conferencing and project management software to communicate with clients and team members.

How Do Financial Analysts Collaborate With Other Professionals in Their Organization?

Financial analysts often collaborate with other professionals in their organization, such as portfolio managers, risk managers, and traders.

They may also work with people in other departments, such as marketing, operations, or sales. Effective collaboration is essential for financial analysts because they must share information, work together to make informed financial decisions, and support other team members.

Financial analysts can use various tools and methods for collaboration, including virtual meetings, project management software, and team-based projects.

What Impact Does a Financial Analyst Have on a Company’s Decision-Making Process?

A financial analyst is critical in a company’s decision-making process. By analyzing financial data, market trends, and other relevant information, financial analysts provide insights and recommendations that help companies make informed decisions about their finances.

This includes, for example, advising on investment opportunities, developing financial projections and budgets, and assessing the risks and benefits of various financial strategies.

Financial analysts are often involved in high-stakes decisions, such as mergers and acquisitions, and their recommendations can significantly impact a company’s financial success.

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