Role of Financial Analyst

Financial analysts play a critical role in an organization’s daily operations. At a high level, they research and utilize financial data to understand the business and market to see how an organization stacks up. Based on general economic conditions and internal data, they recommend actions for the company to take, like selling stock or making other investments.

A financial analyst is responsible for a variety of research tasks in order to inform investment strategy and make investment decisions for their company or clients. This can include things like evaluating financial data, examining current events and market developments, examining an organization’s financial statements, and creating financial models to predict future performance. Depending on the position, analysts can monitor macroeconomic trends or have a narrow focus on specific sectors and industries. These roles are data-intensive and require strong mathematical and analytical skills. Given the value of their role, financial analysts can be employed by large corporations such as investment banks, insurance companies, mutual funds, hedge funds, pension funds, securities firms, investment firms, private equity groups, venture capital firms, government agencies, and similar types of organizations.

Of course, this is just skimming the surface of a financial analyst’s responsibilities. Here are some of the more specific tasks these professionals might perform for a company, according to the Corporate Finance Institute:

Gather and organize information: Whether it’s a company’s historical financial reports and accounting data or macroeconomic information and industry research, an analyst must know how to find, collect and organize vast amounts of information relevant to their business and industry. They use their research skills to review internal databases and reports from government agencies and enter them into a database, like an Excel spreadsheet.

Examine financial statements: A company’s financial statements hold a wealth of important information for a financial analyst. Using these documents (and those sorted into internal databases), they are able to determine the value of the organization. This is one of the most important responsibilities of financial analysts, as this information guides their recommendations and serves as a benchmark for the company’s performance.

Recommend investments: After analyzing all of this information, financial analysts develop a forecast about the market and how the company will perform in the future. This is where they must use their outside knowledge alongside the financial calculations to make recommendations to company officials or investment bankers. A financial analyst will create a portfolio filled with reports backing up their recommendations.

A financial analyst must be prepared to take on many responsibilities. They must conduct research and financial analysis, connect with management teams and company officials and generate written reports and presentations. This is different from an accountant who would be concerned with a company’s financials from an operational perspective, rather than the big-picture, strategic angle of a financial analyst.

Financial analysts work in a number of different industries, including securities, commodities, contracts, investment banking and other financial services. And while the general responsibilities of this role are outlined above, the Bureau of Labor Statistics noted that a financial analyst can choose a specialization based on their professional capacities.

Here are some of the specific roles someone with this expertise can take on:

Fund management: These analysts exclusively work with hedge or mutual funds. They assist management teams and evaluate their strength to help make investment decisions in line with current market trends.

Portfolio management: Every organization wants a strong portfolio. This requires the right balance of products, services, industries and global regions in which to invest, helping the longevity and success of their company. Financial analysts use their expertise to analyze market and business data to recommend a positive investment strategy and measure results.

Ratings analysis: This niche analysis focuses on guiding businesses or government agencies through the best strategies to pay down debts, like bonds. These analysts are heavily involved in understanding a company’s debts and the risk involved if it was unable to repay them.

Risk analyses: As the title suggests, a financial analyst specializing in risk assesses the company’s financial strategy to locate potential sources of loss. However, unlike the previous role, these analysts aim to reduce the risk involved with financial investments and maximize profits.

A senior financial analyst, on the other hand, would take a more active role in building a financial model, forecasting trends and making business recommendations. That’s because they may have a master’s degree with a discipline in finance and more years of experience in the industry or with the company itself. They typically lead a team of analysts and manage workflows to ensure reports and recommendations are ready when business leaders need them.

Most financial analyst job descriptions, whether buy-side or sell-side, include the following key responsibilities:

• Research industry-specific financial developments including broad economic trends and business trends
• Analyze financial statements to evaluate investment opportunities
• Create financial modeling for investors to find profitable investments
• Recommend individual investments and collections of investments
• Asses the performance of stocks, other types of investments, and bonds
• Translate financial data into detailed presentations and easy-to-understand financial reports
• Communicate with C-suite executives from client companies to understand company needs
• Stay up to date with new technologies and market conditions