If you’re interested in becoming a financial analyst, you should know from the beginning that you have a difficult and long road ahead of you, but you might discover on the way that this is one of the best decisions you’ve ever made in your life after you know that what does a financial analyst do.
Given the fact that you put in the necessary studying, efforts and working hours, what awaits you is a long and flourishing career, job security, very good wages, peer respect, interesting projects and the possibility of doing business with interesting people and companies, from which you will learn very much.
However, there are many things you need to know before you get started on this path, which is why this article is here to answer all your preliminary questions, such as what diploma you actually need, how much does a financial analyst make, what are the job opportunities out there and why is the market shifting as some analysts put it?
What is financial analysis?
Financial analysis is better or more colloquial known as accounting analysis.
Its main objective is to assess or to figure out, define and quantify certain financial traits of a business, sub-business or even project. Those financial traits can refer to the business’ viability, stability or profitability.
This basically means that, by performing financial analysis, one can be able to predict with some degree of certainty if a business will be able to continue on its course the same way as before or if it will be discontinued and, if so, for what reasons, if the business or the company itself is able to issue stocks or bonds or if it’s in the position to discuss with a bank the possibility of a loan, so that it can accumulate more working capital. And, finally, the financial analysis allows top management to decide on the best alternative direction in which the company can go.
All this and more is usually done by professionals in the business, which are called financial analysts and who prepare reports. These reports are based on the information gathered from financial statements and are presented to the company’s management so that they can make informed decisions about the company’s future.
What does a financial analyst do?
Now that we’ve established the basis of the financial analysis game, a financial analyst’s job and tasks should be much easier to understand. So, a financial analyst is the actual person who takes a look at a company’s or client’s financial statements, accounts or capitals, pulls out reports using that data, presents them to the company’s management and helps them make viable decisions for the company’s future. However, breaking down these responsibilities lets us know there are three types of financial analysts.
- The in-house financial analyst. This is the typical analyst found in any company. But it’s typical as far as his job goes because not every single company in the world has one as a permanent member of the staff. It very much depends on how big it is and if it can afford a financial advisor. The in-house analyst normally evaluates the budget of the company as a whole and that of its departments and compares it to the spending and the salaries so that he or she can make sure the company is on track. They also look for anomalies in these balances and do the financial forecast for the coming year or business quarter.
- The sell-side financial analyst.This is the type of analyst that works for a brokerage firm. In this case, the firm is the one which takes on clients such as other companies and that means the analyst himself will be working on projects. Recommendations in this situation mostly refer to whether the client-company should or should not buy or resell based on the research that has been done by the analyst. This means that the client-company has outsourced its accounting analysis work to you, the analyst, working for your own company, a brokerage one.
This leads to one major difference between the two types of analysts: Buy side and sell side analysts. Because you are not directly employed by the company that requires the analysis, you also need to make marketing a part of your job. This basically means you need to know how to sell yourself and your services so that companies pick you out of thousands of others and come back to you after you’re done.
- The buy-side financial analyst. He or she basically researches what options of investment there are on the market so that they can help their clients invest. They work with mutual, hedge and pension funds, but they can manage investment portfolios for wealthy individual clients.
These are the three types of financial analysts.
One thing that is very important for you to remember regarding this is that you don’t need to decide right off the bat what type you would like to be.
Independently of that, when you first get hired as a financial analyst, you will start as a junior which means that your main attributes will be to gather data, work on the financial models, keep-up with the news and changes, update the files and the spreadsheets and attend meetings with senior analysts so that you can learn.
Therefore, whatever of the three you choose, at first, you will be doing exactly the same job. This is a good thing because it will allow you to see the underbelly of the business and make an informed decision regarding what your next steps will be.
What studies do you need to be a financial analyst?
Normally, most companies require a bachelor’s degree in a financial related field, because you need to know the basics. But you can also reach for this career of you have a master’s degree either in finance or in business administration and you then take some financial analysis courses on the side.
One thing you need to know here is that you must get your certification as a financial analyst; otherwise, you will not get hired. But the good thing is that many companies nowadays have become far less strict upon hiring and do not require a person to have the certification beforehand, as long as he or she has the proper studies.
Companies are actually glad to put your through training and classes and to pay for them.
Getting the certification will definitely get you ahead in the business. You can also take some advanced courses related to your specialty so that you can focus solely on that and become the best in the branch.
And, if you are truly ambitious, you can take some management courses as well and go on to become a fund manager, usually a position held in high regard by financial analysts and one reserved only for the best.
Courses can most easily be taken online. All you have to do is to visit some research hubs, like usnews.com, which have developed special platforms to help you decide what you want or need to study and where exactly you can do that.
What skills are required for financial analysis?
As a financial analyst, you need a very strong and specific set of skills, so that you can perform the required analysis of the information regarding investment plans for your client-companies. Here they are:
- Complex problem solving – you need to be able to resolve any issue that comes your way and find a suitable solution for your client.
- Mathematics – normally, as a financial analyst, the way in which you solve a problem is via math.
- System analysis – you need to be able to identify how a system works and, also, how it needs to be changed in order to get better results.
- Persuasion – giving the fact that you will be basically pitching ideas to your clients about their financial investment, you need to be persuasive.
- Decision making – this is a very strong skill you must possess. Taking into consideration factors such as costs and benefits of potential actions, you have to be able to choose the right one.
- Negotiation – pleading your case and trying to get most out of a situation is part of the job also.
How do you find a job as a financial analyst?
The internet is your best friend once again when trying to find a job as a financial analyst.
All the jobs are posted online, of course, but there are two ways of finding an opening. They depend on whether you have gone to a field-related college or not.
If you have and you have decided since the beginning that this is the career path for you, then the seniors in the field suggest you should never wait until you graduate to start finding jobs and companies.
While still in college, prospect the market, talk to your colleagues, professors, and older students and get to know the market. This is called networking and the sooner you start doing it, the better.
It does not mean that you need to start working straight away, but rather to make yourself known, understand how the business works, learn which are the best and worst companies to work for, what does their client portfolio look like, what is the office atmosphere and so on.
Also, this is a very good time for you to put yourself out there and make yourself remembered. Later on, after you graduate, get your certificate and go to an interview, they will remember you and half the battle is already won.
The second way of finding a job refers to those people who didn’t go to a field-related college, are older and are just now starting on the financial analysis road.
For those of you out there, learning as much as possible is the key. Find companies and job openings online and go to the interviews with as much knowledge as possible in your back pocket. This is your ticket of convincing companies that, even if you didn’t study finance, this is what you want and were meant to do.
As far as finding jobs go, look for online job market tools, such as indeed.com, which allows you to find financial analysis job in your city or area.
Tips for the interviews
You might think that an interview for a financial analyst position is your typical job interview and you would be right to some extent. Only that there are some tips and tricks you need to know so that you can home in on your success as much as possible.
First of all, most companies still like to subject all their candidates to a test. It’s usually a 30 minutes written quiz with questions regarding technicalities of the business. This is good news for the people who haven’t graduated from field-related colleges, because here is where they can prove they are just as qualified as or even more so than those who have a finance degree under their belt.
Second of all there’s the usual interview advice one gets before participating. Only that, in this case, they really do matter. You will hear advice such as be yourself, be strong, confident, professional and likable.
Yes, be all those things and more.
What you need to understand from the beginning and not take lightly is the fact that this is a very serious position and one that requires a lot of responsibility on your part and much confidence from your employer.
You will be dealing with companies and their finances – budgets, assets, worker’s salaries, bonds, stocks, and investments. Basically, you will be telling companies what to do with their money. And this is why your employer needs to see you as a very serious and reliable person.
Thirdly, you need to check out what kind of profile the company you’re applying to, has. In recent years, there has been a shift in the market. Some financial companies are becoming a lot more relaxed when it comes to their employees and understand that coming to work in jeans or a suit doesn’t decide how good of a financial analyst you are.
This is why they are taking the friendly and casual approach towards both their clients and their employees. So, if your company’s profile is like that, wear something smart casual, act friendly, smile a lot and be relaxed.
However, keep in mind that most companies still work in the traditional way, which means suit and tie are obligatory. Here is the story of a recent graduate who managed to get a job at a Silicon Valley company as a financial analyst, telling all about her interviewing experiences.
How much does a financial analyst make?
This is the question on everybody’s minds when they think about a career in financial analysis.
You needn’t worry, for the outlook is good. USnews.com has made some statistics showing exactly how much a job in financial analysis is paid, how the rates have grown in the past years and how it compares to other jobs. In 2013, financial analysts in the US received an average salary of $78, 380 per annum. The lowest paid analyst received $48, 100 and the highest paid received $152, 420. It’s also good to know that the best areas as far as salaries go are New York City, of course, Bridgeport,
In 2013, financial analysts in the US received an average salary of $78, 380 per annum. The lowest paid analyst received $48, 100 and the highest paid received $152, 420. It’s also good to know that the best areas as far as salaries go are New York City, of course, Bridgeport,
It’s also good to know that the best areas as far as salaries go are New York City, of course, Bridgeport, Connecticut, and San Francisco. But you can also try in California, especially San Jose and Colorado Springs in Colorado.
Compared to other best jobs, the financial analyst comes third as far as salaries go and the financial advisor comes in fourth, after marketing manager, the highest paying job at the moment and the sales manager, the second highest paying job. But being in the top 5 best-paying jobs in the world does indeed count for something and it can serve you as a great incentive to pursue this career.
Tools of the trade
In order to start off your career or to be successful as a financial analyst, apart from the knowledge, you also need to familiarize yourself with the tools of the trade, which are mostly reports, Excel spreadsheets, and PowerPoint presentations.
Getting in the game already familiarized with the Office package is definitely a plus. It’s not possible to be a financial analyst without knowing these things and they can help you to turn from average to great. Learn how to make user-friendly, easy to read and to comprehend Excel spreadsheets, as well as eye-catching PowerPoint presentations and you will be one step ahead of everybody else in the game.
Getting in the game already familiarized with the Office package is definitely a plus. It’s not possible to be a financial analyst without knowing these things and they can help you to turn from average to great. Learn how to make user-friendly, easy to read and to comprehend Excel spreadsheets, as well as eye-catching PP presentations and you will be one step ahead of everybody else in the game.
Learn how to make user-friendly, easy to read and comprehend Excel spreadsheets, as well as eye-catching PP presentations and you will be one step ahead of everybody else in the game.
You will learn how to make reports in college or while getting your certification so don’t worry about the format per se. Broadly speaking a financial report has the following components:
- The company overview, so that all the parties involved can understand the business or the trade.
- The investment thesis, which is basically the motivation why you believe certain decisions should be made regarding the company’s capital. You can include here a detailed analysis of the company’s current financial situation.
- Valuation is the most important part of any report as it shows exactly how much the company is worth on the market.
- The risk management section, where you present your audience with all the risks they might face if they follow your advice.
- Miscellaneous information, which can include different things, based on the type of business the company’s in. For example, let’s say it’s a company making bio-friendly cosmetics; you will need to put in here information about the legal side of the business, animal testing, disclaimers for personal use and the human body and so on.
- The conclusion section is fairly self-explanatory. However, remember to make all your conclusions as short and clear as possible, because this is the main things your clients will remember after the meeting, not numbers and tables.
You can find many tutorials on how to make a financial analysis report online, YouTube videos that walk you through the analysis one step at a time, as well as examples and samples, on specialized sites, such as businessferret.com. As far as the later PP presentation goes, remember to make it catchy and short. Brevity is your friend when it comes to PowerPoint.
What financial analysis techniques are there?
Normally, when it comes to financial analysis, the techniques used depend on the results you’re after. There are two financial statements that need to be used in the analysis – the balance sheet and the income statement. Analyzing them usually uses these 4 techniques:
- Trend analysis; also called time-series analysis, which forecasts how the business evolves and performs as time goes by. It’s based on historical information extracted from the financial statements and on forecasted information taken from the forward-looking statements or pro-forma.
- Common size financial statement analysis that actually means analyzing balance sheets and the income statement by means of percentages.
- The percentage change financial statement analysis that you can use to calculate the growth rates as far as all the income statements are considered and the balance sheet accounts in relation to the base year.
- Benchmarking, also known as industry analysis, means comparing your client-company to other companies, in order to determine how it’s performing in relation to the industry.
As stated above, there are many pros when it comes to being a financial analyst, but there are many cons as well, which is why you need to think all the process through very carefully before you make any decisions. Becoming a financial analyst means working long hours, studying hard and passing all sorts of tests and certifications. But, in the end, the results are more than satisfactory, on all levels.