What Does a Financial Analyst Do?

Updated on April 10, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Does A Financial Analyst Do?

A financial analyst analyzes a project or a company to suggest viable investment decisions to the management/clients. They do a thorough financial analysis and make suitable objective projections to arrive at their conclusions.

What Does a Financial Analyst Do

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Financial analysts are there in a company, a bank, a hospital, insurance companies, and many other businesses that involve huge transactional activities and deal with keeping huge financial details. A little mistake in maintaining records and strategizing finances could lead to adverse effects. Hence, relevant skills and the best possible knowledge in the subject are what build an efficient financial analyst.

Key Takeaways

  • A financial analyst assesses projects or companies to guide management or clients on investment decisions.
  • They conduct comprehensive financial analyses, use structured information to create objective projections, and reach informed conclusions.
  • Financial analysts perform various tasks, including data collection, organizing information, financial modeling, forecasting, evaluating financial outcomes, making recommendations, and preparing recommendation reports. Their goal is to support effective decision-making in financial matters.
  • Financial analysts stay updated with market trends, economic conditions, and industry developments to provide accurate and relevant insights for informed decision-making by monitoring and analyzing financial news, reports, and industry data.

Roles & Responsibilities

#1 – Collection of Information & Data

Financial analyst collects information and data relevant for analysis. In addition, they analyze information such as historical financial statements, transactional reports from accounting software, information about the movement in stock prices, industry research information, statistical information about the company’s products or services, and macroeconomic information relevant to the company. The fundamental question arises, who will provide him with such information? They must gather the data from the company itself and Bloomberg or any other government websites wherein such information is available to the general public. One can extract historical financial statements from the Securities and Exchange Commission (SEC) website.

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#2 – Organize the Information in a Structured Manner

It needs the structural organization of relevant data from various sources for better decision-making and usability. Thus, the financial analyst must sort the information according to the data received or the category. The Excel skills of the financial analyst help him to organize the better in the least possible time.

#3 – Projections & Forecast

No one knows the future, but we still predict and plan for the future. Companies also do the same. They take a base and use assumptions to arrive at certain projections. Sometimes, the client company provides the points and forecast. Then, the analyst checks the projections’ reasonableness. It is easy for an analyst to predict the future of the company’s prospects. It involves the art and science of probabilities. Art and science mean certain assumptions and working on those assumptions.

#4 – Building the Financial Models

A financial model in Excel is the biggest bread and butter for a financial analyst. So, it is an important work area for someone in investment banking, corporate finance, and equity research. The most famous financial models are Discounted Cash Flow Analysis (also known as the DCF model), Leveraged Buyout model (LBO), and Merger & Acquisition model (M&A).

#5 – Analyse the Financial Results

Once one organizes the data in the required format, the next job analyzes various ratios and metrics tools. Some of the key ratios used in the analysis are gross profit margin, operating profit margin, net profit margin, the variable cost to sales ratio, debt-equity ratio, return on capital employed, return on equity, current ratio, net working capital, creditors payment period and debtors collection period. There are many more ratios and metrics which an analyst can use for better comfort in decision-making. That is the main area of work, and hence it needs sufficient time allocation.

#6 – Provide Recommendations

Based on the analysis made, his job is to provide a recommendation. The research is not much help if it cannot give any suggestions. For example, a proposal may include an investor or business perspective. Investor perspective means whether to buy, hold or sell the stock. On the other hand, a business perspective means areas of improvement in the operations of the entity. Such areas include cost reduction techniques, exploring new markets, ideas of becoming a debt-free company, operational efficiencies, etc. A normal analyst easily provides investor perspective recommendations, but only some experts can recommend a business perspective.

#7 – Presenting the Recommendation

After preparing a draft of the recommendation, they eventually worked it out in Microsoft PowerPoint to provide structured guidance. Presentation is the selling skill of a financial analyst. The way they present the information recommendation defines their approach to doing work.

#8 – Creating Charts & Graphs

It is an integral part of the presentation. Any financial analysis is incomplete without charts and graphs explaining the various sets of information. Charts and graphs help the reader capture the data in certain lines or bars.

What does a Financial Analyst do? Video Explained


Frequently Asked Questions (FAQs)

1. What industries typically employ financial analysts?

Financial analysts are employed across various industries, including banking and financial services, investment firms, insurance companies, consulting firms, and corporate finance departments of businesses in diverse sectors.

2. What tools and software do financial analysts use in their work?

Financial analysts commonly utilize tools such as spreadsheets (e.g., Excel), financial modeling software, data analysis tools (e.g., SQL), financial research platforms (e.g., Bloomberg), and presentation software (e.g., PowerPoint) to analyze data, create financial models and present findings.

3. What are the career prospects for financial analysts?

Career prospects for financial analysts are generally favorable, with opportunities for growth and advancement. As financial analysis is a crucial aspect of decision-making in organizations, skilled analysts can explore roles such as senior financial analyst, portfolio manager, investment banker, or financial planning and analysis (FP&A) manager.

4. What educational background is typically required to become a financial analyst?

A bachelor’s degree in finance, accounting, economics, or a related field is typically required to become a financial analyst. However, some employers may prefer or require a master’s degree in finance, business administration (MBA), or a related discipline. In addition, professional certifications such as Chartered Financial Analyst (CFA) can also enhance career prospects.

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