Role of Financial Analyst

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 –

#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 budgeting 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; Profitability improvement; Process Improvement; Cost-benefit analysis 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 management
• 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 dashboards/ using online tools for automating the reporting process.

#5 – Investment Banking

• Financial Analyst at Investment banking 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 offering (IPO).
• Knowledge of investment risk and security analysis.
• Experience in statistics, quantitative analysis, and data modelling.

#6 – Commercial Banking (CB)

• In commercial banking, Financial analysts will work with credit products like term loans, the revolving facility of credit, 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 statements, 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 analysis 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 divestitures and management of the business risk
• 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 restructuring services, etc.
• The analyst provides services to a business entity for the transaction. For example, due diligence if the transaction is a merger 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 excel for valuation.
• They assist in developing proposals and presentations for clients.

#11 – Equity Research

• Equity research analyst 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 analyst 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).

Recommended Articles

This has been a guide to what is the Role of Financial Analyst. Here we discuss the list of top 12 responsibilities including, i.e. due diligence, treasury, financial reporting, investment banking and commercial banking etc. You can learn more about from the following articles –

• Financial Analyst Qualifications
• Financial Analyst Job Description
• All in One Financial Analyst Course
• Financial Modeling Benefits