Accountants of companies prepare various financial reports and statements. These reports are helpful in understanding the financial standing of a company. A financial analyst helps to interpret the reports to help understand the viability and profitability of a company. This information is useful for the management of the company who can make decisions related to the company’s future and investors.
Who is a financial analyst?
As the name suggests, a financial analyst is one who analyzes financial information. He evaluates the financial situation and makes financial forecasts.His main job is to help his client make investment-related decisions. His recommendation will clearly suggest a course of action. If you are an investor and want to make a decision on whether to invest money in a firm or not, then you can take the help of a financial analyst. He will be able to crunch the numbers for you and provide information to help you make an informed decision.
Types of financial analysts
There are different types of financial analysts, the classification is based on the type of work they do.
- Sell-side analyst:Usually works for a brokerage and recommends stocks for clients of the brokerage. The primary job is to research companies and gain a deep understanding of the company’s financials. They usually specialize in a particular sector. They track company performance and make predictions on financial performance. They may also interact with industry experts, company staff, customers of the company, and other stakeholders to understand more about the company. The information is used to help make investment recommendations to clients.
- Buy-side analyst: Work for companies that operate mutual funds, hedge funds, pension funds and portfolio managers. Their job is to study various investment options and suggest where the company can invest money. To do this, they track current news in the country and international developments. They study industry sectors and tracks specific company reports. The focus is more on what could possibly go wrong in an investment.
- In-house analyst: Top companies employ their own analysts who work full time for them. Not all companies do this; they may prefer to outsource work to external experts. The big companies though, prefer to have an in-house expert who can churn through the financial data and come out with recommendations. They analyze company reports and makes a financial forecast for the company with recommendations.
- Fund manager: A manager of a fund is essentially an analyst. Their job is to go through various reports and decide on how to invest the funds collected from investors. The fund manager plays a critical role in the success of the fund. The decisions they make can decide whether the fund succeeds or fails. The analysis carried out needs to be perfect.
The job of a financial analyst
Typically, a financial analyst performs functions that include:
- Researching market trends.
- Following market developments and understanding economic trends.
- Following news related to the market or industry sector.
- Interpreting news and business trends to understand how they affect a company.
- Study financial statements of companies to ascertain their profitability.
- Meet stakeholders of companies to understand more about the company to help in carrying out a proper analysis.
- Prepare reports and charts for management of companies or clients, which outline the findings of the analysis.
- Make recommendations to clients on investments in stocks, bonds, and other assets.
- Create investment portfolios or advise clients to manage their investment portfolio.
He is sometimes referred to as an investment analyst or security analyst.
What does it take to become a financial analyst?
- Educational requirement: You need a bachelor’s degree in finance, statistics, or accounts. Ideally, a master’s degree is preferred. You should have studied the basics of business management, accounting concepts and principles, financial and management accounting, security analysis, risk analysis, portfolio management, statistical techniques, and other related subjects to be able to do your work effectively.
- Skills needed: One of the challenges you will face in this job is to filter through vast reams of data and arrive at a conclusion. This calls for excellent analytical skills, problem-solving skills, and decision-making skills. You also need to be good at data analysis and interpretation, preparing reports, statistics,and mathematics.
- Certification: Companies prefer to hire people who are certified in their area of expertise. Certification from reputed organizations or associations is preferred. You need to complete a course of study and take up an examination if you want to be a certified financial analyst.
- Experience: Companies usually prefer candidates with work experience. If you do not have any work experience, you may get a job as a junior analyst or an intern. If you are well experienced, you can hope to get a job as a senior analyst, fund manager, or portfolio manager at a top company.
A financial analyst sifts through voluminous data and understands trends. They predict the performance of companies and advise clients on investment options. They use tools and techniques of financial analysis to arrive at these recommendations.There is no doubt that an analyst plays an important role in financial systems.