What is a Financial Analyst?
Financial analysts evaluate the financial situation in their area of expertise and generate appropriate reports, both written and oral, regarding their recommendations.
They monitor and interpret available data such as industry and economic trends, forecast the current trends into probable future profitability, determine a fair market value for the sale of company stock, and recommend action to their company or investors.
What does a Financial Analyst do?
A financial analyst manages various aspects of other people’s money, and will typically have a specialized area in which they focus on.
Investment banking is the area with which most people associate financial analysts, but some financial analysts secure jobs in corporations and businesses that are not wholly centred on investment. These companies can be involved in any area of business. Financial analysts working for such businesses are there primarily to manage financial portfolios and act as advisors.
For instance, they may manage budgets and advise upon the condition of the company’s finances. However, if they gauge a potential area where the corporation or business can expand or invest, they may advise the relevant personnel to carry out the appropriate expansion or investment. This is why financial analysts are an invaluable asset to businesses and corporations, and why the role of a financial analyst is an esteemed and significant one within a company.
Within the financial analysis industry, there are two major categories of analysts:
Buy-side financial analysts
The majority of financial analysts work on what is known as the buy side. These analysts work for organizations – known as ‘institutional investors’ – that have money to invest. Examples of institutional investors are mutual funds, pension funds, hedge funds, insurance companies, hospitals, and universities. Buy-side analysts help their employers make decisions on how to spend their money, whether that means investing in stocks and other securities for an in-house fund, buying income properties for a real estate investment firm, or allocating marketing dollars.
Financial analysists who work on the buy-side of the industry rarely have the final say on how their employers or clients spend their money. However, the trends they uncover and the forecasts they make are invaluable in the decision-making process.
Sell-side financial analysts
These analysts help companies price and sell their own investment products. Perhaps the most prestigious and highest-paid financial analyst job is that of a sell-side analyst for a large investment bank or securities firm. In this role, analysists compile data on stocks and bonds and use quantitative analysis to project how these securities will perform in the marketplace. Based on this research, they make buy and sell recommendations.
These analysts may also play a role in determining whether or not certain deals between companies (IPOs, mergers and acquisitions) are feasible, based on corporate fundamentals.
Within these two specialties, there are subspecialties. Analysts may choose to focus on stocks or on fixed-income instruments. They may also specialize further with a specific sector or industry, such as energy or technology.
Financial analysis is a fast-paced, cutting-edge, and highly competitive career choice. A thorough knowledge of ones chosen field on both the macroeconomic and microeconomic level enhances a financial analyst's opportunities for advancement within their area of specialty.
What is the workplace of a Financial Analyst like?
Financial analysts are in demand across many industries. Companies rely on experienced financial analysts to support business growth by identifying trends in financial data and helping senior management make informed decisions. Financial institutions and insurance industries employ the majority of analysts, usually in financial centres in North America and worldwide.
Most financial analysts work in an office environment. Some analysts travel to visit potential investors, potential investments, and perform hands-on evaluations that enable them to accurately decide the value and potential risk of each investment.
In terms of the geographical location of where financial analysts live and work, it depends on the area in which they have specialized. Corporations and businesses are located in any major city in the world, and often corporations have sites in different countries, which could offer the opportunity to travel.
Investment firms, major banks and brokerages are almost always located in the main financial districts of major metropolitan cities. New York, London, Hong Kong, and Singapore are some of the chief cities in which an investment financial analyst can ply their trade.
Frequently Asked Questions
What is a Chartered Financial Analyst?
A chartered financial analyst, or CFA, is someone who has passed a series of intense exams and has obtained the relevant credential from the CFA Institute, which is based in the US. If one possesses the title of being a chartered financial analyst, their prospect of attaining employment with a top investment firm will increase dramatically.
To acquire the necessary credential, or to become a charterholder, a financial analyst is required to have worked for four years in the field of financial analysis. They must pass three six-hour exams, which are notoriously difficult, even for someone with plenty of experience and relevant knowledge.
If a prospective candidate is successful however, the rewards can definitely be worthwhile. The CFA Institute’s benchmark for success means that any financial analyst who has passed the exams will be held in high regard. According to their website, the CFA Institute ‘sets the standard for excellence in the industry,’ and this view is held as a truism within the realm of financial analysis.
Is becoming a Financial Analyst a good career choice?
Depending on which lens through which you look, becoming a financial analyst could be an exhilarating, rewarding career choice, or it could be an arduous, gruelling career choice. Certainly, this is a good career for anyone excited by risk management, numbers and algorithms, and a fast- paced work environment. Notwithstanding, and even if you are excited by all these aspects of a career in financial analysis, you must also possess huge reserves of grit and determination to succeed.
While some people may think that a financial analyst can exist somewhat in the background of an institution, deciphering numbers and producing resultant figures and charts, one should note that having excellent interpersonal skills is a huge asset. This is an especially suitable and good career if you are able to think in an elevated capacity and have acute visionary skills regarding finances and budgets, but also feel comfortable communicating these in a simple and effective manner.
The financial rewards of being a financial analyst are certainly appealing, but it should not be the primary motivation for entering this career. Satisfaction, for a financial analyst who seeks a career with longevity, will come from engaging in critical thinking every work day and undertaking constant detailed analysis.
What types of Financial Analysts are there?
There are various types of financial analysts, such as financial quantitative analysts, security analysts, investment analysts, equity research analysts, and ratings analysts. They are employed by a number of different types of organizations within any type of industry. Some places of employment can include investment banks, securities firms, insurance companies, mutual funds, pension funds, and hedge funds. Each type of financial analyst has their own set of tasks and responsibilities that they perform on a daily basis.
Financial Quantitative Analyst
A financial quantitative analyst provides guidance to businesses and individuals by making investment decisions, evaluating investment opportunities, and assessing the performance of stocks, bonds, and other types of investments. They explain their recommendations to clients and provide a recommendation to buy, hold, or sell a security.
These types of financial analysts often make split-second trading decisions. Thus, paying attention to details when reviewing possible investments is imperative, as these details may end up having large implications for the health of an investment.
Financial quantitative analysts typically do the following:
- recommend individual investments and collections of investments
- evaluate current and historical data
- study economic and business trends
- study a company's financial statements to determine value by projecting future earnings
- meet with company executives to gain better insight into the company's prospects
- prepare written reports
A security analyst conducts research and provides valuation reports by following the performance of certain stocks, sectors, organizations, industries, or economies. Based on their fundamental and/or technical analysis, security analysts will make buy, sell, or hold investment strategy recommendations. Clients usually pay for access to these types of reports. Fundamental analysis is typically done by looking at financial statements (publicly available on EDGAR - Electronic Data Gathering, Analysis, and Retrieval), filings, mergers and acquisitions, and financial publications, and technical analysis is done by looking at price trends, competitive position, and momentum.
Based on their research and valuation, security analysts can also give earnings estimates for a company's future earnings per share (EPS). By coming up with quarterly or annual earnings estimates, they can then come close to giving a fair value for a company as well as a target share price by using cash flow analysis. Earnings estimates are put together to produce a consensus estimate, which would then be used as a benchmark against which a company's actual performance is assessed. When a company misses the consensus estimate, it is reported as an earning 'surprise'.
Investment analysts conduct research and produce buy-sell recommendations derived from global investment data. They examine economic trends, research companies investment potentials, analyze and interpret complicated financial information, write financial research summaries, and make informed recommendations.
These recommendations can be used for agents working for banks or brokerages when selling investments to the public and to their clients (the sell side of the market). Or they can be used for investment managers that work for wealth management firms, hedge funds, or pension funds that need the information so as to make informed decisions when buying and selling securities directly (the buy side of the market).
Equity Research Analyst
An equity research analyst and an investment analyst are similar when it comes to their job duties, educational requirements and career prospects, however the two job roles are quite different. While investment analysts take a more strategic, big-picture approach to their research, equity research analysts specialize in producing accurate projections and recommendations for smaller groups of companies in specific industries.
Equity research analysts work for both the buy-side and the sell-side of the securities market, reporting on the financial strength of companies. They monitor market data and news reports, produce research reports, and give accurate projections and recommendations concerning companies and stocks. Their recommendations (communicated through their research reports) provide insightful ideas for traders, institutional investors, and the general investing public.
A ratings analyst gives investors a third-party assessment which is helpful as this adds an additional layer of accountability when it comes to a company's performance and transparency. By promoting corporate transparency and by holding companies accountable for their performance, ratings analysts help keep the market on its toes and serve as unbiased accountability mechanism.
With both a solid amount of research and a healthy level of professional skepticism, ratings analysts give an anticipated target price on what a company's security will be in the near future. For example, if a stock is currently trading at $10 per share, and a ratings analyst gives a future target price of $25 per share (the prediction perhaps being based on global demand or improvement initiatives), an investor can then get a general idea of when to sell the stock and why.
Steps to becoming a Financial Analyst
The route to becoming a financial analyst is both typical and atypical. It is the former because it calls for a commitment to formal education. It is the latter because licensure requirements vary between sectors of the industry and the certification process is particularly rigorous.
Get an early start in high school. Get the right undergraduate degree. Get a job. Get licensed. Get certified. Get a master’s degree.
Most prospective financial analysts spend between four and six years studying Finance before entering the field:
Bachelor’s Degree – four years
Master’s Degree – two years
Following their formal education and after earning their license to practise (licensure is mandatory for most analysts working on the sell side of the industry), analysts may pursue optional certification. The exams, which are administered by the Chartered Financial Analyst Institute, can be taken concurrently with the required work experience. The process typically takes between two and five years.
Should I become a Financial Analyst?
To compete effectively in their industry financial analysts need a wide range of skills:
A financial analyst’s job involves making complex mathematical calculations to estimate and project the value of financial securities.
Research and analytical skills
Financial analysts must be able to research and interpret copious amounts of information from various sources; break it down into simpler components; and make decisions that improve market share and maximize profits.
Attention to detail
A mistake made by a financial analyst can result in a significant financial loss. At the core of the analyst’s work is paying attention to the smallest details in financial reports and models.
A financial analyst often serves as a firm’s decision-maker concerning company finances and the buying, selling, and holding of securities.
Financial analysts must be adept at using specialized software to analyze financial data, identify trends, create portfolios, and make forecasts.
Communication & marketing skills
Analysts in the finance industry must regularly collaborate with others, present their findings, explain their recommendations, and create related reports.
Ability to manage stress
Long working hours, tight deadlines, and periodic sacrificing of work-life balance are characteristics of a career in financial analysis. Successful analysts have the capacity to manage the resulting stress.
It takes years to become an expert in financial analysis. Patience and long-term commitment are called for.
Even though a particular action may not be illegal, it still may not be moral. Financial analysts who uphold ethical standards do not simply follow the letter of the law; they follow the intention and spirit of the law.
Additional information to help you answer the question, ‘Should I become a financial analyst?’
The financial analysis industry offers high wages, advancement opportunities, and the possibility of working in several different fields. Jobs for analysts exist with securities and investment banking firms; accounting firms, banks, and trust companies; insurance companies; mutual and pension funds; investment counseling firms; and large private corporations.
What are Financial Analysts like?
Based on our pool of users, financial analysts tend to be predominately enterprising people. The work of producing in-depth financial plans, projections, and analytical reports for use in investment decisions by companies, public and private organizations, and individuals is, without doubt, an enterprising undertaking.
Successful financial analysts are excellent critical thinkers; they can logically determine the best course of action regarding any potential investment. They should be lifelong and active learners in order to remain current regarding market conditions and new technologies, and to be able to predict the long-term results of their investment decisions.
A financial analyst identifies potential problems within his or her investment options and either seeks a solution to the problem or opts out of the opportunity. Excellent communication skills, combined with the ability to distill large quantities of complex data into clear, concise presentations, allow an analyst to convey investment opportunities in a manner that encourages clients to sign on.
Financial analysts are willing to take risks in order to generate profit, but they are also experts in risk management and are sensitive to the acceptable risk level for their clients. Integrity, dependability, attention to detail, and initiative are hallmarks of a successful analyst.
Are Financial Analysts happy?
Financial analysts rank among the least happy careers. Overall they rank in the 17th percentile of careers for satisfaction scores. Please note that this number is derived from the data we have collected from our Sokanu members only.
While not based on hard evidence or statistics, it is possible to surmise that the extreme competition, high stress, and work-life balance challenges associated with this career may contribute to its low happiness quotient.
Financial Analysts are also known as:
Securities Analyst Investment Analyst Equity Research Analyst Financial Research Analyst Chartered Financial Analyst Entry-Level FInancial Analyst