What is the Role of a Financial Analyst?
The primary role of Financial Analyst is to analyze the financial data and other relevant information and provide useful insights to the management based on that the business decisions are made. They work on the investment opportunities, analyze the economic conditions, company’s performance and fundamentals to forecast future performance and recommend a course of action, such as buying or selling a company’s share, based on its overall outlook and expected performance.
Below is the list of Top 12 roles and responsibility of Financial Analyst –
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#1 – Financial Planning & Analysis (FP&A)
FP&A Analysts perform the tasks of budgeting, forecasting, and analytical work to support the business strategy and to monitor the financial health of the organization. Following are their roles –
- Analyze the financial data of the company and identify trends, considering the company’s goals and financial standing.
- Analyze actual results vs budgeted/forecasted and identify the gaps and report it to the management.
- Support the team in budgetingBudgetingBudgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time.read more and suggest improvements based on the analytical information available with the analyst.
- Evaluate the capital and revenue budgets; Analyze the working capital and cash flow position of the business; ProfitabilityProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance.read more improvement; Process Improvement; Cost-benefit analysisCost-benefit AnalysisCost-benefit analysis is the technique used by the companies to arrive at a critical decision after working out the potential returns of a particular action and considering its overall costs. Some of these models include Net Present Value, Benefit-Cost Ratio etc.read more and cost-cutting initiatives.
- Variance Analysis of current and past financial information; Performs financial forecasting, and keep the management informed and helps them to make the right decisions.
- Develop financial models to forecast the outcomes of certain business decisions. Analyze the business process and financial performance, conduct benchmarking, and develops forecast models.
- Track Operational metrics regularly and provide suitable business recommendations to the management.
#2 – Due Diligence
Analysts perform due diligence for business partnering by way of examining their financial performance and position.
- In the case of Mergers & Acquisitions, they play a crucial role by performing due diligence.
- Analysts employed by banks do due diligence before granting loans. They examine all the financial data before concluding whether the client is good to give credit.
#3 – Treasury
Analysts who work in the treasury department take care of the following –
- Cash managementCash ManagementCash Management refers to the appropriate collection, handling, & disbursement of cash for ensuring financial stability & avoiding insolvency risk. read more
- Treasury operations
- Liquidity Planning and control
- Looking for investment opportunities
- Take care of all banking transactions
- deals with foreign currency settlement
- Corporate Finance
- Management of interest
- currency and commodity risks
#4 – Financial Reporting
- Prepare reports on various financial parameters and performance and communicating the insights to the management.
- Provide suggestions and recommendations based on the financial reports prepared to reduce costs and improve financial performance.
- Drive the process improvements and present it to the management in the form of dashboards, ad-hoc reports, etc.
- Develop excel dashboardsExcel DashboardsThe Excel Dashboard is an enhanced form of data visualization that helps managers plan and achieve business targets and facilitates decision-making. Users can apply excel table and charts, pivot table and charts, interactive controls, excel formulas, etc., to create excel dashboards.read more/ using online tools for automating the reporting process.
#5 – Investment Banking
- Financial Analyst at 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.read more does industry-specific research and analysis.
- They build financial valuation models and track financial trends.
- They prepare research reports, status reports, presentations, briefing books, and pitching books for initial public offeringInitial Public OfferingInitial Public Offering (IPO) is when the shares of the private companies are listed for the first time in the stock exchange for public trading and investment. This allows a private company to raise the capital for different purposes.read more (IPO).
- Knowledge of investment risk and security analysisSecurity AnalysisSecurity analysis is the process of interpreting the value of financial instruments such as stocks, bonds, debts, warrants, and other securities of a company to ensure that the investors are investing through publicly available information. The three related methods include fundamental, technical, and quantitative approaches.read more.
- Experience in statistics, quantitative analysis, and data modelling.
#6 – Commercial Banking (CB)
- In commercial bankingCommercial BankingA commercial bank refers to a financial institution that provides various financial solutions to the individual customers or small business clients. It facilitates bank deposits, locker service, loans, checking accounts, and different financial products like savings accounts, bank overdrafts, and certificates of deposits.read more, Financial analysts will work with credit products like term loans, the revolving facility of creditRevolving Facility Of CreditA revolving credit facility refers to a pre-approved loan facility provided by banks to their corporate clients. It states that the companies are free to borrow funds from these financial institutions to fulfill their cash flow needs by paying off the underlying commitment fees.read more, syndicated facilities, funding for working capital, product loans, and other fixed-income products.
- Evaluate the creditworthiness of the business ventures and determine their ability to repay credits/loans taken from the bank.
- Analyze the client’s financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more, financial performance, and position, industry, and management team. The inputs are used to decide whether the client can be provided credit or not.
#7 – Portfolio Management
- Portfolio analysts help their clients to buy or sell investments.
- They conduct detailed portfolio analysisPortfolio AnalysisPortfolio analysis is one of the areas of investment management that enables market participants to analyze and assess the performance of a portfolio to measure performance on a relative and absolute basis along with its associated risks.read more and prepare reports based on that.
- They analyze and compare different industries, past financial trends, financial metrics, and other legal restrictions.
#8 – Corporate Development
Corporate development analyst works predominantly on the following –
- Mergers & acquisitions
- Improving divestituresDivestituresDivesting, also known as divestiture, refers to the sale or transfer of the significant assets, divisions, investment of the business due to some financial, political or social reasons such as a business can sell the department which is not a core part of the business and is not providing benefits to the company so that the business can focus on the units that can provide better earnings.read more and management of the business riskBusiness RiskBusiness risk is associated with running a business. The risk can be higher or lower from time to time. But it will be there as long as you run a business or want to operate and expand.read more
- Capital fund-raising
- Exploring new markets for the business, products, and customers
- Identifying new opportunities
- Work towards the company’s vision, mission, and strategy.
#9 – Transaction Advisory
- Transaction advisory analyst deals with the transaction side of the business and predominantly covers advisory for mergers and acquisitions, diligence service, valuation services, debt restructuringDebt RestructuringDebt restructuring is a refinancing process whereby the company facing cash flow issues arranges with lenders to renegotiate favourable or flexible terms, saving themselves from bankruptcy. The lenders may choose to lower the business rate or increase the time limit for paying the interest and principal amount.read more services, etc.
- The analyst provides services to a business entity for the transaction. For example, due diligence if the transaction is a mergerMergerA merger is a voluntary fusion of two existing entities equal in size, operations, and customers deciding to amalgamate to form a new entity, expand its reach into new territories, lower operational costs, increase revenues, and earn greater control over market share.read more or acquisition of a company.
#10 – Valuation
- Valuation analysts analyze a business; equity; commodity; asset; real estate, etc., and estimates an approximate value based on the valuation techniques. They develop financial models in excelFinancial Models In ExcelFinancial modeling in Excel refers to a tool used for preparing the expected financial statements predicting the company's financial performance in a future period using the assumptions and historical performance information.read more for valuation.
- They assist in developing proposals and presentations for clients.
#11 – Equity Research
- Equity research analystEquity Research AnalystAn equity research analyst is a qualified professional who interprets financial information and trends of an organization or industry to provide recommendations, opinions, reports, and projections on the corporate stocks to facilitate equity trading.read more does financial research and analysis of a company’s performance, forecasting the financial statements, and derive a valuation for the company and provide recommendations to investors for their investment plan.
- They do both quantitative and qualitative analysis of equity’s statistical data concerning the market and economic conditions.
- They analyze the stocks and help the investors to make a better investment decision. They recommend whether to “Buy”, “Hold” or to “Sell” equity supported with proper analysis and theory.
#12 – Private Equity (PE)
- Private Equity analystPrivate Equity AnalystA private equity analyst is an analyst who looks for undervalued companies for a private equity investor to buy, take them private and earn profits. The companies are primarily unlisted, and the risk is higher.read more does research and analysis of private companies. Financial Modeling techniques are used to determine the pros and cons of investing in private companies.
- PE Analysts work with PE firms, and they manage the investment funds and portfolio of private companies.
- Analysts provide input for acquisition opportunities and strategic growth of the business.
- They work on analyzing the best investment mix and opportunities which give the highest Return of Investment (ROI).
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