In an increasingly competitive business environment, financial analysts are essential to an organization’s bottom line. Utilizing skills for strategic insights, data analysis, and decision-making, financial analysts can have tremendous impact on a company’s direction, and the value placed on them can ensure job security and career longevity for those who take an interest in the field.
What Is a Financial Analyst?
Financial analysts are experts in assessing the financial performance of an organization. According to the U.S. Bureau of Labor Statistics (BLS), the agency that tracks and analyzes employment data, financial analysts “guide businesses and individuals in decisions about expending money to attain profit.”
For students and professionals with a keen interest in finance and accounting, problem-solving, and organizational strategy, the role of a financial analyst can be very attractive. The role is both dynamic and challenging, as analysts must not only contribute to critical decisions but also keep up with the market in their evolving field. While foundational concepts of finance may never change, the market always does — as do regulations that can be altered by political and economic environments.
There are many types of financial analysts, and not all specialties apply to all industries. According to the BLS, some types of financial analysts include:
- Financial risk specialists/analysts – These professionals assess investment threats, devise strategies to navigate unpredictability, minimize potential losses, and provide recommendations to limit risk.
- Fund managers – These analysts specialize in either hedge funds or mutual funds and are empowered to execute buy or sell decisions in response to changing market conditions.
- Investment analysts – These analysts evaluate information on investment programs and financial data, addressing client and advisor queries on asset allocation, business valuation, and alternative investments.
- Portfolio managers – These analysts select products, industries, and regions for a company's investment portfolio, overseeing performance and communicating investment decisions and strategies.
- Ratings analysts – These professionals assess debt-paying capabilities, determining and rating the risk of potential bond repayment issues.
- Securities analysts – These analysts are responsible for identifying investment opportunities for clients and companies based on market trends.
What Does a Financial Analyst Do?
The role of a financial analyst involves much more than crunching numbers. Organizations across all industries employ financial analysts for tasks that include:
- Recommending individual investments and collections of investments, known as portfolios
- Evaluating current and historical financial data
- Studying economic and business trends
- Examining a company’s financial statements to determine its value
- Meeting with company officials to gain better insight into the company’s prospects
- Assessing the strength of the management team
- Evaluating opportunities to commit money for the purpose of generating profit
For those exploring the field, it’s important to note that the role of a financial analyst is divided into two categories. Buy-side financial analysts work with institutional investors, including hedge funds, insurance companies, and pension funds, to develop investment strategies. Sell-side financial analysts, on the other hand, provide guidance to financial services sales agents who sell investments — including stocks and bonds — and facilitate transactions between buyers and sellers in financial markets.
The CFA Institute, a global nonprofit that provides finance education to investment professionals, explains the difference between the two in greater detail, with a look at the benefits and drawbacks for those considering either role:
Buy-side
- Benefits: Identify potential negative outcomes for investors to avoid; help investors understand which sell-side analysts are producing quality work
- Drawbacks: More pressure to be accurate in recommendations than sell-side analysts experience
Sell-side
- Benefits: Provide useful information to clients and buy-side analysts; add value to an organization when an analysts’ predictions bring in new investor business
- Drawbacks: Pressure to be one of the first analysts to provide an accurate rating on a stock; relationship management may sway clients more than the quality of the research
How Do I Become a Financial Analyst?
Beyond a love of numbers, a finance degree is often the fundamental step forward for those seeking a career as a financial analyst. Learning advanced financial principles, analytical strategies, and changing dynamics of the market, a finance education will put complicated concepts into perspective and prepare you for the position regardless of the company or field that interests you.
According to O*NET Online, a bachelor’s degree is required for most financial analyst positions. As you plot your academic path, you’ll want to choose a university and degree program that will provide you with a foundational understanding of financial analysis, management, and systems.
Your degree should embed in you the ability to:
- Analyze business and financial conditions using appropriate problem-solving skills
- Apply financial theories to conduct financial analysis
- Appraise financial practices to achieve the efficient use of financial resources
- Evaluate the political, social, legal, regulatory, and technological issues in the context of micro- and macro-finance
- Evaluate financial information and non-financial information in order to appropriately assess business opportunities
- Construct long-range financial planning, implementation, and control systems
Further, you may need specific certifications to work as a financial analyst, especially considering the licensing requirements in the securities industry. Licensing is determined by the Financial Industry Regulatory Authority (FIRA), which offers a number of exams for professionals, including the Security Industries Essentials exam, FINRA Representative-level exams, and Municipal Securities Rulemaking Body (MSRB) exams, among others.
What Skills Are Needed to Become a Financial Analyst?
The role of a financial analyst involves a combination of soft and hard skills necessary for making decisions that will impact the short- and long-term health of an organization.
Among the key soft skills financial analysts need:
- Analytical skills – The ability to evaluate a range of information in finding profitable investments
- Communication skills – The ability to clearly explain their recommendations to clients
- Computer skills – The ability to be adept at using software to analyze financial data and trends, create portfolios, and make forecasts
- Decision-making skills – The ability to reach justifiable conclusions so they can recommend whether to buy, hold, or sell securities
- Math skills – The ability to use mathematics to estimate the value of financial securities
For financial analysts, the key hard skills they must possess involve a multitude of technologies. According to O*NET, some of the primary technology tools financial analysts need to master include:
- Accounting software
- Business intelligence and data analysis software
- Database reporting software
- Financial analysis software
- Office suite software
- Presentation software
- Project management software
For the BLS information regarding this occupational field, click here.
The agency attributes this projected growth to several factors:
- The demand for financial analysts correlates with economic activity, increasing with the establishment of new businesses and expansion of existing ones.
- Emerging international markets present new investment opportunities, creating a need for analysts with expertise in the geographic regions where these markets are situated.
- The demand is fueled by advancements in technology, enabling analysts to conduct high-quality analysis that will aide businesses in financial management, helping them identify investment trends and introduce new products and services.
How Much Do Financial Analysts Make?
O*NET Online is a helpful resource for providing up-to-date data on salary information, and you ca find that information here.
Summary: What Is a Financial Analyst?
Financial analysts play a critical role in delivering strategic insights, data analysis, and decision-making expertise to organizations. It’s a growing field with increasing value. However, education is paramount for budding financial professionals. A finance degree can be the foundational step for your career as a financial analyst, equipping you with the fundamental analytical skills, financial theories, and understanding of market dynamics needed to compete in today’s job market.
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