Role of Financial Analyst

The main role of a Financial Analyst is to analyze the financial data and other relevant information and provide useful insights to the management based on the business decisions that are made. They work on the investment opportunities, analyze the economic conditions, company's performance, and fundamentals to forecast future performance, and recommend a course of action, such as buying or selling a company's share, based on its overall outlook and expected performance.

Apart from the technical skills, some soft skills such as communication, interpersonal skills, and problem-solving come in handy for this role as it can be a high-pressure job, and handling such situations can be tricky. However, the role is extremely important in the context of a company and for the economy on the whole.

• . The Financial Analyst's prominent role is to examine and determine the financial data and other applicable information and enable beneficial knowledge to the management depending on the business decisions.
• They work on the investment opportunities, analyze the financial situation, company's conduct, and basics to predict future performance. They also recommend a course of action, such as buying or selling a company's share.
• The roles of financial analysts are financial planning & analysis (FP&A), due diligence, treasury, financial reporting, investment banking, commercial banking, portfolio management, corporate development, transaction advisory, valuation, equity research, and private equity (PE).

The main role of a financial analyst in an organization is to scrutinize the financial data and present in a way that the organization can make decisions that breed more gains. In other words, their job is to convert data into actionable terms.

This is a specialized job with different roles to play within their daily routine. These professionals bridge the gap between potential clients and the top management by helping both parties by deriving meaning out of the endless data produced by their businesses.

Some skills are technical such as a deep understanding of accounting, profitability analysis, knowledge of private equity, and so on. Moreover, some soft skills such as communication, leadership, and problem-solving skills could come in handy to make the most of the role.

Let us understand the role of a financial analyst within a company through the detailed list as discussed below. It is important to note that these roles can be different for different organizations and their requirements. However, the roles mentioned below are a common feature in most companies.

#1 - Financial Planning & Analysis (FP&A)

FP&A Analysts perform the tasks of budgeting, forecasting, and analytical work to support the business strategy and monitor the organization's financial health. Following are their roles –

• Analyze the company's financial data and identify trends, considering the company's goals and financial standing.
• Analyze actual results vs. budgeted/forecasted, identify the gaps, and report them to management.
• Support the team in budgeting and suggest improvements based on the analytical information available with the analyst.
• Evaluate the capital and revenue budgets; Analyze the working capital and cash flow position of the business; Profitability improvement; Process Improvement; Cost-benefit analysis and cost-cutting initiatives.
• Variance Analysis of current and past financial information; Performs financial forecasting, keeps the management informed, and helps them make the right decisions.
•  Develop financial models to forecast the outcomes of certain business decisions. Analyze the business process and financial performance, conduct benchmarking, and develop forecast models.
• Track Operational metrics regularly and provide suitable business recommendations to the management.

#2 - Due Diligence

Analysts perform due diligence for business partnering by examining their financial performance and position.

• In the case of Mergers & Acquisitions, they play a crucial role by performing due diligence.
• Analysts employed by banks do due diligence before granting loans. They examine all the financial data before concluding whether the client is good to give credit.

#3 - Treasury

Analysts who work in the treasury department take care of the following –

• Cash management
• Treasury operations
• Liquidity Planning and Control
• Looking for investment opportunities
• Take care of all banking transactions
• Deals with foreign currency settlement
• Corporate Finance
• Management of interest
• Currency and commodity risks

#4 - Financial Reporting

• Prepare reports on various financial parameters and performance and communicate the insights to the management.
• Provide suggestions and recommendations based on the financial reports prepared to reduce costs and improve financial performance.
• Drive the process improvements and present them to the management in dashboards, ad-hoc reports, etc.
• Develop excel dashboards/ using online tools for automating the reporting process.

#5 - Investment Banking

• A Financial Analyst at Investment banking does industry-specific research and analysis.
• They build financial valuation models and track financial trends.
• They prepare research reports, status reports, presentations, briefing books, and pitching books for initial public offering (IPO).
• Knowledge of investment risk and security analysis.
• Experience in statistics, quantitative analysis, and data modeling.

#6 - Commercial Banking (CB)

• In commercial banking, Financial analysts will work with credit products like term loans, the revolving facility of credit, syndicated facilities, funding for working capital, product loans, and other fixed-income products.
• Evaluate the creditworthiness of the business ventures and determine their ability to repay credits/loans taken from the bank.
• Analyze the client’s financial statements, financial performance, position, industry, and management team. The inputs are used to decide whether the client can be provided credit or not.

#7 - Portfolio Management

• Portfolio analysts help their clients to buy or sell investments.
• They conduct detailed portfolio analysis and prepare reports based on that.
•  They analyze and compare different industries, past financial trends, financial metrics, and other legal restrictions.

#8 - Corporate Development

Corporate development analyst works predominantly on the following –

• Mergers & acquisitions
• Improving divestitures and management of the business risk
• Capital fund-raising
• Exploring new markets for the business, products, and customers
• Identifying new opportunities
• Work towards the company’s vision, mission, and strategy.

#9 - Transaction Advisory

• Transaction advisory analyst deals with the transaction side of the business and predominantly covers advisory for mergers and acquisitions, diligence service, valuation services, debt restructuring services, etc.
• The analyst provides services to a business entity for the transaction. For example, due diligence if the transaction is a merger or acquisition of a company.

#10 - Valuation

• Valuation analysts analyze a business, equity, commodity; asset; real estate, etc., and estimate an approximate value based on the valuation techniques. They develop financial models in excel for valuation.
• They assist in developing proposals and presentations for clients.

#11 - Equity Research

• Equity research analyst does financial research and analysis of a company's performance, forecasting the financial statements, deriving a valuation for the company, and providing recommendations to investors for their investment plan.
• They do a quantitative and qualitative analysis of equity's statistical data concerning the market and economic conditions.
• They analyze the stocks and help the investors to make better investment decisions. They recommend whether to "Buy," "Hold," or to "Sell" equity supported with proper analysis and theory.

#12 - Private Equity (PE)

• Private Equity analyst does research and analysis of private companies. Financial Modeling techniques are used to determine the pros and cons of investing in private companies.
• PE Analysts work with PE firms, and they manage the investment funds and portfolio of private companies.
• Analysts provide input for acquisition opportunities and strategic growth of the business.
• They analyze the best investment mix and opportunities that give the highest Return of Investment (ROI).

This has been a guide to what is the Role of A Financial Analyst. Here, we list the top 12 responsibilities of an analyst in detail. You can learn more about from the following articles –

• Financial Analyst Qualifications
• Financial Modeling Benefits