What does a financial analyst do?

Financial analysis is the process of evaluating businesses, budgets, projects and various other financial data to determine their performance and suitability.

Typically used to determine if an entity is stable, solvent, liquid or profitable enough to warrant a monetary investment.

It reflects various complex financial data which is then used to evaluate economic trends, build long term plans for a business activity, set financial policies, and identification of projects or companies for investment.

The financial analysis of an entity gives you the ability to predict with some degree of certainty whether the business will continue on its course, the same way it has until now or will it discontinue, along with the reasons for its discontinuation.

Simply put, the financial analysis of an entity allows the top management to decide on the best alternatives with which the company should move ahead.

Financial analysis is conducted in both investment and corporate finance settings. One of the key areas of corporate financial analysis involves extrapolating a company’s past performance, and estimate the company’s future performance.

This study allows the business to forecast budgets and make decisions based on past trends. Whereas in investment finance, an outside financial analyst will conduct the financial analysis for investment purposes.

Objectives of Financial Analysis:

  • Reviewing the performance of a company over the past periods
  • Assessing the current position & operational efficiency
  • Predicting growth & profitability prospects
  • Loan decision by financial institutions & banks

It is quite evident how important financial analysis is. The business professionals who are responsible for all activities related to data gathering, analyzing historical records, making recommendations, generating excel models, creating presentations, generating reports, organizing information, making forecasts and projections and undertake financial analysis are called as Financial Analysts.

An analyst is a person who is well versed with the fundamental working principles of a particular domain or area of study.

Similarly, a Financial Analyst is one who studies a company and tries to make predictions about the financial health of the company, in the future.

The position of a Financial Analyst is imperative to the financial planning and analysis department of a business. The core responsibility of a Financial Analyst is to analyze financial statements and inspect and predict future performance of the company.

Which many include forecasting future revenues and expenditures, along with modelling the capital structure and budgeting.

Simply put a Financial Analyst prepares reports, based on the information gathered from financial statements and then presents it to the company’s management. Now the management of the company is fully equipped to make informed decisions about the company’s future.

Financial Analysts use past and present data and create solid financial plans. By analyzing the company’s performance along with fluctuations in the market, such financial planning helps the analyst not only to forecast but also calculate variances between those forecasts and actual.

Hence it is the analyst’s job to track down and provide an explanation for such variances.

An analyst would tend to specialize in a particular industry, region or product. For example, one analyst might cultivate expertise in the Automobile industry, while another focuses on the IT industry.

A Financial Analyst will never himself or herself invest in stocks, bonds or other financial tools. His or her is strictly an advisory role.

Financial analysis is a very complex field.

Apart from synthesizing and communicating all the data clearly a Financial Analyst must have good knowledge of the legal, political and economic landscape around them which is capable of shaping business fortunes.

Financial Analyst or an Accountant?

As a Financial Analyst, when you tell someone what you do, the most common response is, “Oh, you are an accountant”. It is true that accounting and Financial Analysis are related and use similar set of data, but they perform very different roles within the organization.

An accountant’s focus is on collecting and organizing historical information about the business. Accounting involves book keeping, auditing, account planning and many related activities but it’s focus is essentially on historical data.

Whereas Financial Analysts are more future focused. They use all the financial information and data to make predictions and recommendations about what the company should do in the future. Their role requires them to keep an eye on the market conditions, news and competitors and then advising executives about how these factors can affect their business.

Major Responsibilities of A Financial Analyst:

Let us see beyond the typical official Financial Analyst job description and take a look at what analysts do in practical terms:

  • A Financial Analyst has a major role in determining a company’s present value and future business abilities. His or her duty is not limited to just analyzing financial information but also come up with forecasts for a business and help the management to make well informed and correct decisions.
  • An analyst is tasked with creation of various spreadsheets and dashboards which aid their analysis. The data organized by them provides them a clear interpretation of all recent trends and fluctuations. Some of the analysts are even tasked with the responsibility of creating models to value potential investment opportunities, which is very similar to the role of an equity research associate.
  • An in-house Financial Analyst is expected to meet with various project managers and discuss on various parameters that have an impact on the company’s performance. He or she may interview these managers to ascertain the causes of certain variances of performance.

There are various steps and procedures with which a Financial Analyst will be able to draw on certain conclusions with respect to the company’s performance. Now let us get into understanding what exactly does a Financial Analyst do? Or you might say what are the various processes involved with which they predict very accurate and precise information provide the same to the management or executives of the company.

Functions of a Financial Analyst:

Here is a list which includes some of the most common functions of a Financial Analyst:

1. Gather Data

To analyze something the first thing that you need to do is to collect data or information about that it. Thus a Financial Analyst will always start by gathering all those resources such as stock price information, historical financial reports, statistics and macroeconomic data, industry research, accounting data from the general ledger or any other type of quantitative data that will help him/her to conduct his or her analysis.

2. Organizing Data & Information

Organization is very important especially when you are dealing with loads of information or data. Merely collecting all sorts of data will not suffice until and unless you organize it in an efficient manner. Hence the second function or responsibility of a Financial Analyst is to organize, clean and format all data he/she receives and convert it into something that makes sense, is very clear and precise.

3. Analysis of Financial Data

Once everything is cleaned up and organized in a proper and understandable format, now it’s time for the financial analyst to start analyzing past information and all historical results. There are many ratios and metrics which are considered such as gross margin, return on assets, return on equity, year on year growth rate, fixed vs variable costs, net margin, etc. The analyst now looks for trends and builds upon those trends, and benchmark’s the performance against other companies (in the same industry).

4. Make Forecasts and Projections

After gathering, organizing and analyzing all the historical information the financial analyst will now make project forecasts about how the company will perform in the future. Forecasting is both a science and an art with which a financial analyst predicts the performance of a company.

5. Recommendations

The characteristics of being a good financial analyst comes from your ability to generate insights and recommendations on how to improve the operations of a business. Recommendations or insights can be of various types such as ways to cut costs, opportunities to grow revenue, operational efficiencies, ways to increase market share and many more.

6. Building Models

Financial modelling is a very big part of the job of a Financial Analyst. Especially the ones working in investment bank, equity research, corporate development, financial planning and analysis and other areas of corporate finance.

Financial modelling is the basic tool for fundamental analysis and valuations. An investment banker will use it to arrive at a valuation in M&A or fund raising transactions. Equity analyst will use it to value stocks and suggest buy/sell/hold recommendations.

A financial model will help bankers and credit analysts to project future revenues and costs and to make an informed judgement of a projects viability. It is used by companies to access their own finances and projects, hence acts as an input to create funding plans for corporate projects.

Entrepreneurs use Financial models to present plans to potential investors.

Financial models vary in form, type and complexity based on the purpose for which they are built. Some of the common financial models are: Valuation using (DCF) Discounted Cash Flow; Leveraged Buyout Model (LBO); M&A Model; Credit Rating Model; Comparable Company Analysis; etc.

7. Making Presentations

A Financial Analyst will not just gather, organize, format and analyze data but will also build various charts and graphs and present the entire picture clearly and precisely.

8. Generating Reports

Internal reports and dashboards are all very integral part of the everyday activities of an analyst. It is imperative to the company or the client that all information is clearly, timely, accurately and insight-fully presented.
Types of Entities in which a Financial Analyst Will Work:

Most of the Financial Analysts are located at large financial institutions, mostly in large metropolitan cities such as New York City, Singapore, Mumbai, etc. They are employed in various industries such as:

  • Security and brokerage firms
  • Investment banks
  • Mutual funds
  • Pension funds
  • Insurance companies
  • Government
  • Private industry
  • Rating agencies
  • Banks

Start-ups & Financial Analysts:

Many investment firms don’t even consider a start-up until and unless a Financial Analyst has built a financial model of their business. Services of a Financial Analyst are utilized by both an investment firm or company and a start-up. Hence working for both the start-ups and the Venture Capitalists, Financial Analysts play a vital role in the start-up ecosystem.

Founders of a start-up may find developing a comprehensive overview of a business very challenging. Whereas Financial analysts have a good understanding of how businesses operate and what sort of data gathering and analytics is required to turn information into actionable intelligence.

Categories of Financial Analyst:

There are three main categories of Financial Analysts in which they can be grouped or singled out, these are:

1. In-house Financial Analyst

An In-house Financial Analyst will normally evaluate the budget of the company and that of its various departments and compare it to the spending and salaries to ensure that the company is on track.

They look at the anomalies in the balances and predict the financial forecast for the coming year or a business quarter. One of the most typical Financial Analyst the in-house Financial Analyst is part of most of the companies around us.

2. Buy Side Analyst

A buy side analyst will research on various investment options available in the market and help their clients invest in the most lucrative ones.

In simple terms the buy side analyst will help their employers to make decisions on how to spend their money, which can either be investing in stocks or other securities or buying income properties or allocating marketing dollars.

They work with mutual, hedge or pension funds but they can also manage investment portfolios for wealthy individual clients.

The Buy Side Financial Analyst will now do all the necessary research, build models, and deepen his or her knowledge of the particular industry or area of expertise. They will also advice in-house fund managers as to which investments to make and which ones to avoid.

Their aim to check all permutations and combinations of what can go wrong with an investment and how well the stocks that they have recommended will perform for their employer.

3. Sell Side Analyst

This type of Financial Analyst will work for a brokerage firm or a firm that manages individual accounts and provides advice to its clients. The firm then takes on the other clients (other companies). This simply means that the client-company has outsourced its accounting analysis work to a Financial Analyst through a firm.

The Financial Analyst will then do the required research, build models and predict a stock’s performance. The analyst will meet with various institutional investors and company leaders to perform his or her research.

He or she will cultivate expert networks in order to deepen their knowledge in a particular field. Their aim is to find fresh and accurate information regarding an investment.

The recommendations of a sell side analyst carry a great deal of weight in the investment industry, including those who work within buy side firms.

One of the highest paid jobs or the most prestigious Financial Analyst job is that of a sell side analyst for a big investment bank. A buy side Financial Analyst might help banks in pricing their own investment products and sell them in the marketplace.

Even within these specialties there are sub-specialties, which comprises of those who focus on stocks or a fixed income instrument. Many of the analysts also specialize in specific sector or industry.

Financial Analysis is also very significant from an investors point of view. As an investor, financial analysis will help you in accessing the liquidity, efficiency, profitability and financial strength of the organization. Which will result in making good investment decisions.

Key Responsibilities of a Financial Analyst:

  •  Grow financial performance by analysing financial results, forecasts, trends and variance
  • Develop financial models to support validation, forecasting and planning
  • Create recommendations which will be presented to the management and executives
  • Aid in capital budgeting and expenditure planning processes
  • Conduct comparable analysis and market research to support internal financial analysis
  • Reconcile existing transactions through cross-referencing of incoming and outgoing data
  • A Financial Analyst is expected to maintain up-to-date technical knowledge of financial instruments, market conditions and trends

Common types of Financial Analysts:

Most of the Financial Analysts prefer to specialize in a particular industry, region or a type of product. Here are four common types of Financial Analysts:

1. Portfolio managers

A portfolio manager usually supervises a team of other analysts and determines the products, industries or regions on which to focus their company’s investment portfolio. He or she is responsible for the overall performance of the portfolio. In addition to top-notch data analysis skills, a portfolio manager is expected to be an expert communicator, and good in explaining and strategies to company leaders.

Skills a Portfolio Manager would need:

  • Microscopic attention to detail
  • Good team management skills
  • Ability to synthesize data and create reports
  • He or she should be a worst case scenario thinker
  • Should be tech savvy

2. Fund managers

A Fund Manager oversees a hedge fund or a mutual fund and select which securities to purchase, sell or keep. They are expected to be quick and adept at navigating quickly changing markets. Their job requires them to make split-second decisions to buy or sell depending on the current state of the market.

Skills a Fund Manager would need:

  • He or she should be a split-second decision maker
  • Capability to thrive on rapid change
  • Should be tech savvy
  • Microscopic attention to detail
  • Ability to synthesize data and create reports

3. Ratings analysts

A Ratings Analyst’s job is to assess and predict the ability of a company or a government to repay their debts, especially bonds. Their analysis helps the management to assign risks to companies or governments based on their ability to repay their debts.

Skills a Ratings Analyst would need:

  • Microscopic attention to detail
  • Ability to synthesize data and create reports
  • His or her preference should be to provide stability
  • Should be tech savvy

4. Risk analysts

A Risk Analyst will determine how unpredictable market conditions can be and how manage, protect or find ways to limit their company’s exposure to such conditions. Hence their aim is to limit losses and manage unpredictability. They help companies in reducing risk by maintaining a diversified portfolio and continuously accessing the risks associated with their current investments.

Skills a Risk Analyst would need:

  • He or she should be a worst case scenario thinker
  • His or her preference should be to provide stability
  • Microscopic attention to detail
  • Ability to synthesize data and create reports
  • Should be tech savvy

Personality and Interests of a Financial Analyst:

According to Holland Code Framework, (Holland Code are ways of classifying people according to their interests so that they can be matched with appropriate careers); Financial Analysts typically have interest in Thinking, Persuading and Organizing.

The thinking interest area indicates a focus on research, investigation and increasing the understanding of natural laws. The persuading interest area focuses on influencing, motivating and selling to other people. Whereas the organizing interest area has a focus on working with information and processes to keep things arranged in orderly system.

As it is clearly evident all three interest area – thinking, persuading and organizing are integral to the process of financial analysis, without which exploring various different possibilities and prediction won’t be possible.

A Financial Analyst is expected to think not only about out of the box solutions but also persuade higher management executives in taking decisions based on his or her recommendations.

There are also a few very specific qualities that a Financial Analysts should possess; such as the ones mentioned below.

Competencies and Skills Required:

A Financial Analyst is expected not only to understand the economic climate but also find valuable action steps. Being a Financial Analyst you need to acquire a few skills such as:

1. Analytical and mathematical skills

The work of a Financial Analyst requires painstaking research into financial data starting from profit and loss statements to global economic trends to various government regulations. An Analyst will create various financial models, assimilate all sorts of information, forecast business performance and earnings and build reports for peers, managers, executives and clients.

A Financial Analyst cannot be intimidated by numbers. Depending on his or her job profile whether in an investment bank or in a mutual fund and other areas, the level of competency or complexity required to excel in mathematics may vary and he or she should be well versed with all basic and advanced concepts of mathematics if required so.

2. Research skills

One of the most important jobs of a Financial Analyst is Research. Without data mined from research, there can be no analysis. Research involves spending time in understanding the problems or a scenario, asking questions and also knowing where to look for answers. As a Financial Analyst you are expected to be resourceful and aware of your environment. What differentiates one Financial Analyst from the other is knowing where to find the best quality data and information.

3. Detail oriented

A depreciation number of 343 will lead to a very different answer than a depreciation number of 434. Even one percent here or there on the DCF can completely alter the valuation of a company. Hence the devil lies in the details of a Financial Analyst’s job. As a Financial Analyst you must catch such changes which includes both mistakes and recent trends and arrive at insightful conclusions. As you all know everything lies in details and all the numbers and calculations should be minutely checked and confirmed before being used in analysis and reports.

4. Communication skills

When not crunching numbers in the office or creating reports, a Financial Analyst is mostly on the road meeting face to face with company leaders, investors and clients to evaluate business opportunities. One of their core functions is to synthesize all research findings into clear, easily understandable reports and counselling of senior leaders. Hence good and effective communication skills are a must for a Financial Analyst.
The work profile of a Financial Analyst is not only to crunch numbers but also to pitch ideas to their clients about their financial investment, hence the quality of being persuasive will always come in handy for a Financial Analyst.

5. A voracious appetite for data

An analyst not only evaluates but also digests huge volumes of information or data to get an accurate read on business performance, which includes historic and current economic trends, company financial statements, national and international business news and more. Data or information acts as the back bone of their analysis, hence huge sets of data not only ensure accuracy of their predictions but also provide a solid foundation for their analysis.

6. Decisiveness

As an advisor, a financial analyst will recommend whether to buy, sell or hold a security. Many times, such decisions are made under tremendous pressure, with only a split second to make the call. Hence one of the biggest abilities of a Financial Analyst is his or her decisiveness, his or her ability to adapt to changes and quickly act upon them for the benefit of their clients or company.

7. Technical abilities

Modern technology makes it much easier and faster to find, sort and process information that you need to work with.
A Financial Analyst should be adept with a host of software packages and relational databases. Knowledge of Excel and PowerPoint is extremely essential for a Financial Analyst.

8. Marketing skills

Persuasion is very important for an analyst. As a Financial Analyst, you need to persuade investors to listen to your stock recommendations and convince clients to sign on. All of which requires the ability to sell yourself and your research in a very convincing manner.

9. Relationship skills

A Financial Analyst is expected to maintain relationships across stake holders such as companies, clients, colleagues, and many more. Sharing cordial relationship with all stake holders ensures creative effective solutions, team work and better overall outcomes. Financial analysis is as much as a people’s job as anything else. This is again an area where good and effective communication skills come in handy for a Financial Analyst.

10. Negotiation

Pleading your case as a Financial Analyst and trying to get the most out of a situation is part of the job. Negotiating on matters and convincing the management or executives is not only difficult but require high levels of persuasive skills.

What can a Financial Analyst do for your business:

All of you have a basic understanding of how, what, when and where a Financial Analyst is required. Now let us see how a Financial Analyst is helpful for your own business. Here are some of the concrete services a Financial

Analyst will offer you:

1. Financial modelling

The mathematical representation of a business that is used to make predictions and decisions is called as financial modelling.
A financial model usually incorporates various data and assumptions about the company such as revenue, costs, capital, unit economics, taxes, budget, etc.

Financial models are really helpful in grasping the complexity of a business. It is able to reduce all the information and data in the form that is easily understood and can be manipulated to provide actionable insights. Without a comprehensive financial model, it is very difficult to access the overall health of a business.

2. Identifying risks

Financial analysts are experts when it comes to identify risks. Risk analysis is all about avoiding wrong decisions. A risk is a negative event that might have an adverse effect on a business. The whole concept of risk analysis is to focus on identifying potential risks and the likelihood that they will cause a problem.

3. Budget forecasting

Based on projections of future performance, budget forecasts allow business owners to make informed decisions. A budget forecast presents a view of the future, extrapolated from past performance, anticipated trends and the goals of the business.

A Financial Analyst is also able to provide guidance about budget variance. Together these two, the forecasting and variance empower companies to swiftly react to changing environments to achieve their stated goals.

4. Pricing Analysis

Pricing is one of the most difficult tasks for any business. There are many questions such as which price points should be chosen to maximize revenue? How changing prices would impact sales or subscriptions?
Getting wrong answers to all such questions can depress sales and give competitors an advantage whereas getting them right will increase margins, revenue and growth.

5. Recruitment and labor cost management

A Financial Analyst can also help businesses in making hiring choices that support its revenue and productivity goals.

6. Enhance decision making

The whole purpose of financial analysis is to study all those factors that affect the overall financial health of a business, transform them into valuable and understandable information that the founders and executives can use to make decisions and predictions.

Degrees and Certifications

Entry-level roles as a Financial Analyst, requires at least a bachelor’s degree and the most common majors in the field are accounting, statistics, economics, finance, business administration and mathematics.

To further advance in the profession, employers often require and MBA or a master’s degree in business administration, data analytics, finance or business analytics. Some employers also require the Chartered Financial Analyst (CFA) designation.

Adding some practical designation such as CFI’s Financial Modelling and Valuation Analyst (FMVA) certification; Certified Public Accountant (CPA) certification; Certified Financial Planner (CFP) designation; Financial Risk Manager (FRM) certification; Chartered Alternative Investment Analyst (CAIA) designation; is also good.

Regardless of education, a successful career as a Financial Analyst requires very strong quantitative skills, adeptness to use of logic, expert problem solving ability and above average communication skills.


The core function of a Financial Analyst is to research macroeconomic and microeconomics conditions along with other company fundamentals and make predictions about businesses, industries and various related sectors.

They work as translators of information to the management team and the job profile of a Financial Analyst is not about just informing the management but also recommending a course of action, such as buying or selling a company’s stock based on its overall performance.

It’s really not hard to imagine why someone would need a financial analyst. Their insight acts as a guideline towards larger profit margins, decreased financial risks and various other benefits that keep a company or an individual financially stable and lucrative. The biggest responsibility of a Financial Analyst is to identify latest trends in business before anyone else does.

Any business that frequently makes weighty decisions on how to spend money is definitely a place where a Financial Analyst can add tremendous value. Financial Analysts are rarely expected to predict the performance of a company beyond a few years into the future.

By extrapolating from present scenarios, all the reports provided by Financial Analysts give investors or company managers enough information to prepare for short term window. As all these projections are subject to external or any unforeseen event.

The term Financial Analyst is a very broad term, as a Financial Analyst usually plays different roles within different companies and sectors, however there is no doubt that the role of a Financial Analyst within the financial sector is one of the most coveted and revered one.

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