Skills of a Financial Analyst
The skills required for becoming a financial analyst comprises of a combination of technical finance skills and non-technical behavioural skills. The technical skill includes financial modelling, equity research, merger and acquisitions, credit risk modelling, accounting software skills, IFRS knowledge, etc. Non-technical skills include behavioural skills like communication, leadership, interpersonal skills, problem-solving attitude, analytical thinking, etc.
Here is the list of Top 9 Skills required for becoming a Financial Analyst
- Accounting SkillsAccounting SkillsAccounting Skills are the set of skills required to present business transactions comprising of financial and non-financial in the books of accounts as per prescribed Standards of Accounting (US GAAP, IFRS, Ind AS) and as a part of legal compliance and analysis of business outcome in an optimum way.
- Financial ModelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.
- Accounting Software
- Project Financing Skills
- Corporate Finance
- Business Valuation
- MS Excel Skills
- Communication and Interpersonal Skills
- Problem-Solving Skills
Let us discuss each of the skills in detail.
List of Top 9 Skills Required for the Financial Analyst
- Accounting Skills: It is a finance area role; therefore, accounting skill is a must. A financial analystFinancial AnalystA financial analyst analyses a project or a company with the primary objective to advise the management/clients about viable investment decisions. They do a thorough financial analysis and make suitable objective projections to arrive at their conclusions. should be well versed with the accounting principlesAccounting PrinciplesAccounting principles are the set guidelines and rules issued by accounting standards like GAAP and IFRS for the companies to follow while recording and presenting the financial information in the books of accounts. and understand IFRS (International Financial Reporting Standards) and GAAPGAAPGenerally accepted accounting principles (GAAP) are the minimum standards and uniform guidelines for the accounting and reporting. These standards prohibit firms from engaging in unethical business activities and enable for a more accurate comparison of financial reports to investors. (Generally Accepted Accounting Principles). The skills relating to budgeting & forecasting, cost analysis, managing cash flow, reconciliationReconciliationReconciliation is the process of comparing account balances to identify any financial inconsistencies, discrepancies, omissions, or even fraud. At the end of any accounting period, reconciliation involves matching balances and ensuring that debits (credits) from one account for one transaction is same as the credit (debits) to another account for the same transaction., etc. will help a financial analyst work effectively.
- Financial Modeling: The financial analyst should be good at financial modeling, should have a working knowledge of different types of financial models, like merger and acquisition financial model, three statement modeling, discounted cash flowDiscounted Cash FlowDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company's future performance., IPO modeling, etc. Financial modeling helps the financial analyst in advising management regarding various business decisions.
- Knowledge of Accounting Software: The financial analysts should have up-to-date knowledge of the organisation’s latest accounting software. They can learn it through various sources online as well as defined courses. Every company wants a candidate with a ready knowledge of accounting softwareAccounting SoftwareWave Accounting Software, Akaunting Software, Slick Pie Accounting Software, GnuCash Accounting Software, xTuplePostBoks Accounting Software, Inv24 Accounting and Inventory Software, and NCH Express Accounts Accounting Software are among the best accounting softwares available.. But for candidates with little or no experience, it is a bit difficult. Therefore, they can go for these courses to build their knowledge database for accounting software.
- Project Financing Skills: Financial analysts possessing project financing skills are an excellent asset for the company. For this purpose, they need to know about project finance, financial modeling, and they should have an analytical bend of thinking.
- Corporate Finance Knowledge: The financial analyst should have knowledge of corporate finance topics including that of equity researchEquity ResearchEquity Research refers to the study of a business, i.e., analyzing a company's financials, performing Ratio Analysis, Financial forecasting in Excel (Financial Modeling), & exploring scenarios to make insightful BUY/HOLD/SELL stock investment recommendations. Moreover, the Equity Research Analysts discuss their findings & details in the Equity Research Reports. , private equity, and fixed incomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.. These skills are required, especially when a financial analyst is working in investment bankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc. or wants to become a fund or portfolio manager.
- Business Valuation: The financial analyst should be able to perform business valuation, i.e. calculating the fair value of the business at the time of sale of a business, partnership ownership, etc.
- MS Excel Skills: Apart from accounting software, MS Excel is the most sought-after skill in financial analyst candidates. Candidates can learn excel from online courses and a lot of free material available online.
- Communication and Interpersonal Skills: Apart from the above technical skills, effective communication and interpersonal skills are also critical. It helps a lot when communicating over email, and talking over the phone to resolve an issue. Interpersonal skill sets help while communicating with stakeholders, clients, and investors; it also helps pick up non-verbal cues.
- Problem-Solving Skills: Financial analysts need to be a problem-solver. Their very existence depends upon this ability, be it finding the solution to a complicated financial equation or decision regarding the company’s critical matter. The company depends a lot upon their analysis and advice while making crucial business decisions.
These are some of the critical skill sets that we discussed, but this is not an exhaustive list. There are many other technical and behavioural skills like analytical thinking, leadership skills, etc. which can be added to the list.
This article has been a guide to Financial Analyst Skills and Requirements. Here we discuss a list of top 9 skills along with a detailed explanation. You can learn more from the following articles –