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.