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A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job. The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, or ratings analyst.Financial Analysts
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Financial Analysts
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The job title is a broad one:What does a financial analyst do?
Rasmussen College Rasmussen University is a private for-profit university with multiple locations throughout the United States. It offers associate's, bachelor's, master's and doctoral degrees at 23 campuses in Minnesota, Illinois, North Dakota, Florida, Wisconsin ...
Financial Analyst job description guide
Robert Half
Financial Specialists
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in banking, and industry more generally, various other analyst-roles cover financial management and (credit) risk management, as opposed to focusing on investments and valuation; these are also discussed in this article.


Role

Financial analysts are employed by mutual- and pension funds, hedge funds, securities firms, banks, investment banks, insurance companies, and other businesses, helping these companies or their clients make investment decisions. In corporate roles, financial analysts perform budget, revenue and cost modelling and analytics as part of their responsibilities;
credit analysis Credit analysis is the method by which one calculates the creditworthiness of a business or organization. In other words, It is the evaluation of the ability of a company to honor its financial obligations. The audited financial statements of a lar ...
is likewise a distinct area. Credit Analysts
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Financial analysts invariably use spreadsheets (and
statistical software Statistical software are specialized computer programs for analysis in statistics and econometrics. Open-source * ADaMSoft – a generalized statistical software with data mining algorithms and methods for data management * ADMB – a software ...
packages) to analyze financial data, spot trends, and develop forecasts. The analyst often also meets with company officials to gain a better insight into a company's prospects and to determine the company's managerial effectiveness. Analysts specializing in advanced mathematical modeling and programming are referred to as "quants"; see for an overview, and for the various roles.


Securities firms

In a stock brokerage house or investment bank (discussed below), the analyst will read company financial statements and analyze commodity prices, sales, costs, expenses, and tax rates in order to determine a company's value and project future earnings. On the basis of their results, they write reports and make presentations, usually making recommendations - a " trade idea" - to buy or sell a particular investment or security. Typically, at the end of the assessment, an analyst would provide a rating recommending or investment action: to buy, sell, or hold the security. Senior analysts may actually make the decision to buy or sell for the company or client if they are the ones responsible for managing the assets. Other, "junior" analysts use the data to model and measure the financial risks associated with making a particular investment decision. See . Usually, financial analysts study a specific industry - "sector specialists" - assessing current trends in business practices, products, and industry competition. Among the industries with the most analyst coverage are
biotechnology Biotechnology is the integration of natural sciences and engineering sciences in order to achieve the application of organisms, cells, parts thereof and molecular analogues for products and services. The term ''biotechnology'' was first used by ...
, financial services, energy, mining / resources, and computer hardware, software and services. Analysts must keep abreast of new regulations or policies that may affect the industry, as well as monitor the economy to determine its effect on earnings. A 1999 paper by Ezra Zuckerman found that, as equity analysts divide securities by discrete sectors, companies which fall outside or across multiple sectors are punished in the ratings of analysts Analysts also specialize in fixed Income. Similar to Equity Analysts, ''Fixed Income Analysts'' assess the value and analyze the risks of various securities, here focusing on interest rate- and fixed income securities, particularly bonds. They may further specialize, but here by issuer-type, i.e.
municipal bond A municipal bond, commonly known as a muni, is a bond issued by state or local governments, or entities they create such as authorities and special districts. In the United States, interest income received by holders of municipal bonds is often, ...
s, government bonds, and
corporate bonds A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity o ...
; the latter specialization is often decomposed into
convertible bond In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock i ...
s,
high yield bonds In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events, ...
, and distressed bonds; some cover syndicated bank loans. The reporting focuses on the ability of the issuer to make payments - similar to the credit analysis described below - but also on the relative value of the security in question, and in context of the overall market and yield curve. See Fixed income analysis. Analysts are generally divided into 'sell-side' and 'buy-side'. The buy-side is sometimes considered more prestigious, professional, and scholarly, while the sell-side may be higher-paid and more like a sales and marketing role. It is common to begin careers on the sell-side at large banks then move to the buy-side at a fund. *A sell-side analyst's work is not used by its employer to invest directly, rather it is sold either for money or for other benefits by the employer to buy-side organisations. Sell-side research is often used as 'soft money' rather than sold directly, for example provided to preferred clients in return for business. Writing reports or notes expressing opinions is always a part of "sell-side" (brokerage) analyst job and is often not required for "buy-side" (investment firms) analysts. It is sometimes used to promote the companies being researched when the sell-side has some other interest in them, as a form of marketing, which can lead to conflicts of interest. *A buy-side analyst, such as a fund manager, works for a company which buys and holds stocks itself, on the analyst's recommendation. As they gain experience, analysts often move from buy-side research, concerning individual securities and sectors, into portfolio management itself, selecting the mix of investments for a company's portfolio. They may also become fund managers and manage large investment portfolios for individual investors. Typically, analysts use fundamental analysis principles, but technical analysis and tactical evaluation of the market environment are also routine. Analysts obtain information by studying public records and filings by the company, as well as by participating in public earnings calls where they can ask direct questions to the management. Additional information can be also received in small group or one-on-one meetings with senior members of management teams. However, in many markets such information gathering became difficult and potentially illegal due to legislative changes brought upon by corporate scandals in the early 2000s. One example is
Regulation FD Regulation FD (Fair Disclosure),
Retrieved January 25, 2011.
ordinarily referred to as Regula ...
(Fair Disclosure) in the United States. Many other developed countries also adopted similar rules. Analyst performance is ranked by a range of services such as StarMine owned by Thomson Reuters or Institutional Investor magazine. Research by
Numis Numis is an independent institutional stockbroker and corporate advisor with its main headquarters in the City of London. By the autumn of 2017, the firm had 195 stock market clients, and a February 2018 report by Adviser Rankings Ltd found tha ...
found that small companies with the most analyst coverage outperformed peers by 2.5 per cent — while those with low coverage underperformed by 0.7 per cent.


Controversies about financing

Analyst recommendations on stocks owned by firms employing them may be seen as potentially biased. Debate still exists about the way sell-side analysts are paid. Usually brokerage fees pay for their research. But this creates a temptation for analysts to act as stock sellers and to lure investors into "overtrading". Some consider that it would be sounder if investors had to pay for financial research separately and directly to fully independent research firms. The research department sometimes doesn't have the ability to bring in enough money to be a self-sustaining research company. The research analysts' department is therefore sometimes part of the marketing department of an investment bank,
brokerage A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be conf ...
, or
investment advisory An Investment advisory, in financial/investment organizations, is the unit linking the investment professionals in the central asset management unit (Investment Research, Portfolio Management) to the relationship managers and/or to important clien ...
firm. Since 2002 there has been extra effort to overcome perceived
conflicts of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations in ...
between the investment part of the firm and the public and client research part of the firm (see
accounting scandals Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...
). For example, research firms are sometimes separated into two categories, brokerage and independent. Independent researchers are not part of an investment firm and so don't have the same incentive to issue overly favorable views on companies. But this might not be sufficient to avoid all conflicts of interest. In Europe, the Markets in Financial Instruments Directive 2004 and subsequent related legislation has in part been an attempt to clarify the exact remit of equity analysts. A recent development is the introduction of "MiFID 2" ( Directive 2014/65/EU), a legal framework for securities markets, investment intermediaries, and trading venues. Particularly, here, the way that research may be sold is regulated; see § Substance there, and .


Investment Banking

Financial analysts in the investment banking departments of securities or banking firms often work in teams, analyzing the future prospects of companies, and selling shares to the public for the first time via an initial public offering (IPO), or issuing bonds; this task is often identical to that of a securities analyst. On this basis, they will then make presentations to prospective investors re the merits of investing in the new company, presenting their "
pitch book A pitch book (or pitch deck), also called a Confidential Information Memorandum, is a marketing presentation (information layout) used by investment banks, entrepreneurs, corporate finance firms, business brokers and other M&A intermediaries a ...
s" on a “ roadshow;” see
bookrunner In investment banking, a bookrunner is usually the main underwriter or lead-manager/arranger/coordinator in equity, debt, or hybrid securities issuances. The bookrunner usually syndicates with other investment banks in order to lower its risk. T ...
and securities underwriting. An additional component of the IB role here: analysts ensure that all forms and written materials necessary for compliance with Securities and Exchange Commission regulations are accurate and complete. Many IB analysts work in
mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
(M&A) departments, similarly preparing analyses on the costs and benefits of a proposed merger or takeover, and assisting with regulatory submissions; here there are both buy-side- and sell-side analysts. See . The analysis is somewhat more specialized than for an IPO, as it must consider: (i) valuation pre- and post-merger, a function of efficiencies, synergies, and / or increased market share, (ii) financing employed, including M&A specific considerations such as the swap ratio, and (iii) tax implications. Compare
Business valuation Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing t ...
and
Stock valuation In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit fr ...
. At more senior levels, "vice presidents" (VPs, or Senior SVPs) will manage the workflow and deliverables - with modelling performed by "associate" AVPs - but not be involved in the line-by-line detail ''per se''.
Directors Director may refer to: Literature * ''Director'' (magazine), a British magazine * ''The Director'' (novel), a 1971 novel by Henry Denker * ''The Director'' (play), a 2000 play by Nancy Hasty Music * Director (band), an Irish rock band * ''Di ...
will be responsible for "rainmaking" and maintaining existing client relationships. The latter role incorporates a significant advisory element - guiding the client re their profile and exposure in the
capital markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...
, and advising on M&A and other corporate activity (and liaising with sales and trading).


Middle office

Within banking, there are other non-quant analyst roles (not necessarily titled "financial analyst"), mainly within the "middle office"; these are generally linked, at least by dotted line, to both the Finance and Risk Management areas. * Corporate Treasury is responsible for an investment bank's funding, capital structure management, and liquidity risk monitoring; see . It is then (co)responsible for the bank's funds transfer pricing (FTP) framework, allowing for comparable financial performance evaluation among business units * Product Control is primarily responsible for "explaining" the P&L; i.e.: attributing returns to individual desks, decomposing these into their risk factors, and ensuring that traders' positions are reflected at their market values; the tools here are often built by a separate quant team, possibly front office, but maintained by Product Control. *Credit Risk monitors the bank's debt-clients on an ongoing basis, as described below; it is additionally responsible for tracking the risk capital and risk adjusted returns on these clients, and reporting re concentration risk and
risk appetite Risk appetite is the level of risk that an organization is prepared to accept in pursuit of its objectives, before action is deemed necessary to reduce the risk. It represents a balance between the potential benefits of innovation and the threats, ...
. These areas, together with the various dedicated “Risk Groups”, allow "Finance" to advise Senior Management re the firm's global risk exposure and the profitability and structure of the firm's various businesses; see . A comptroller (or financial controller) is a senior position, responsible for these analyses and
internal control Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. A broa ...
more generally, usually reporting to the bank's
chief financial officer The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financi ...
, as well as copying the
chief risk officer The chief risk officer (CRO) or chief risk management officer (CRMO) or chief risk and compliance officer (CRCO) of a firm or corporation is the executive accountable for enabling the efficient and effective governance of significant risks, and rel ...
.


Corporate and other

Financial Analysts within corporates Careers in Finance
§1.4 in
Financial Analyst Job Description
Corporate Finance Institute
provide inputs into all elements of the firm's financial management.Financial Managers
Bureau of Labor Statistics
The ''short term'' focus is on working capital management, and includes tasks such as profitability analysis, cost analysis, variance analysis, and
cash flow forecasting Cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position; the cash flow forecast is typically based on anticipated payments and receivables. See Financial forecast for general discussion ...
(often overlapping treasury management). ''Medium term'' elements are budgeting and planning; their models here form the basis for financial forecasting, scenario analysis (sometimes re corporate strategy), §39 "Corporate Planning Models". See also, §294 "Simulation Model". and balance sheet optimization .Budget Analysts
Bureau of Labor Statistics
The latter, extends to involvement with dividend policy, and
capital structure In corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt (borrowed funds), and preferred stock, and is detailed in the ...
; relatedly, forecasts here also feed into group ALM. Analysts are also involved with ''long term'' "
capital budgeting Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects ...
", i.e. decisions relating to "project" selection and valuation and related funding decisions; these forecasts feed through to the
Debt Capital Markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...
team, "DCM", responsible for securing and managing long-term funding. Risk analytics will span all perspectives. Management of these deliverables sits with the
financial manager A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
(FM); while
budget analyst A budget is a calculation play, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environmenta ...
, cost analyst, treasury analyst / manager, and risk analyst / manager are often specialized roles. The area overall is sometimes referred to as "FP&A" (Financial Planning and Analysis). Financial planning and analysis (FP&A) professional
Association of Chartered Certified Accountants Founded in 1904, the Association of Chartered Certified Accountants (ACCA) is the global professional accounting body offering the Chartered Certified Accountant qualification (ACCA). It has 240,952 members and 541,930 future members worldwi ...
The
financial director The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financi ...
or
chief financial officer The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financi ...
(FD, CFO) has primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financial reporting. There are several analyst roles related to
credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
, macro or micro. Ratings analysts (who are often employees of ratings agencies), evaluate the ability of companies or governments that issue bonds to repay their debt. On the basis of their evaluation, a management team assigns a rating to a company's or government's bonds. Financial analysts employed in commercial lending perform balance sheet analysis, examining the borrower's audited financial statements and corollary data in order to similarly assess lending risks, and to confirm that yield is appropriate given risk; this task is both upfront and on a monitoring basis thereafter. The focus is on current and forecasted debt- and liquidity ratios generally, and specifically those related to any
loan covenant A loan covenant is a condition in a commercial loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a ...
s, such as DSCR and LTVR. In
retail banking Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking. Banking ser ...
, credit analysts build models to determine an applicant's creditworthiness, assign an initial credit score, and monitor this and the loan on the basis of an ongoing "behavioral" score. In the latter two roles, impairment- and
provision Provision(s) may refer to: * Provision (accounting), a term for liability in accounting * Provision (contracting), a term for a procurement condition * ''Provision'' (album), an album by Scritti Politti * A term for the distribution, storing and/ ...
-modelling are a prominent deliverable (see
IFRS 9 IFRS 9 is an International Financial Reporting Standard (IFRS) published by the International Accounting Standards Board (IASB). It addresses the accounting for financial instruments. It contains three main topics: classification and measurement ...
); the PD, EAD and LGD statistics or models are (often) provided by a separate (but dedicated) credit-quant team. Some financial analysts specialize as "
accounting analyst An accounting analyst evaluates public company financial statements. Public companies issue these ( 10-K) annual financial statements as required by the Security and Exchange Commission. The statements include the balance sheet, the income state ...
s"; they will collect industry data (mainly balance sheet, income statement and capital adequacy in banking sector), merger and acquisition history and financial news for their clients. They then typically “standardize“ the different companies' data, facilitating peer group analysis: the main objective here is to enable their clients to make better decisions about the investment across different regions. They also provide the abundance of
financial ratio A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financia ...
s calculated from the data gathered from financial statements, and possibly other sources.


Qualification


General

In general, a business-related bachelor's degree majoring in Accounting, in Finance, or in Economics is a minimum requirement for an entry or junior role. Given the nature of the work, (some) proficiency in Excel is typically a recommendation (and analysts may be expected to learn database software "on the job"); see further under Financial Modeling. With seniority, often, analysts are expected to earn an MBA, having gained 2–3 years experience in the junior role. Increasingly, it is preferred that, even to enter, analysts hold a master's degree in finance.''Determine If a Master's in Finance Is the Right Move''
usnews.com, Feb. 9, 2015.
More specific qualifications may be required additionally:Financial Managers
collegegrad.com
*In (senior) financial management roles, a professional accounting certification – the CPA, CA, CMA, or CIMA – is often a prerequisite; this, given the overlap with tax and financial reporting. *Risk managers increasingly require the FRM / PRM, or an actuarial qualification such as CERA. * Credit analysts C. Morah (2021
Analyzing a Career in Credit Analysis
investopedia Investopedia is a financial media website headquartered in New York City. Founded in 1999, Investopedia provides investment dictionaries, advice, reviews, ratings, and comparisons of financial products such as securities accounts. Investopedia ha ...
.com
in technical-roles may require these also (or at a minimum, specified math-credits); in more commercial-roles, an industry certification, such as the CBA from the NACM may be specified. *In treasury management roles, analysts often hold the ACT or CTP credential.


Securities and Investment banking

In securities and IB roles, it is lately preferred that, similarly, even to enter, analysts earn a master's or the CFA designation – in Europe, the CIIA also – with the MBA still common at senior levels. Often, there are also regulatory requirements. For example, in the United States, sell-side or Wall Street research analysts must register with the
Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...
(FINRA). In addition to passing the ''General Securities Representative Exam'' (
Series 7 Series 7 may refer to: *The seventh season of any of many shows or series; see and *Series 7 exam, officially the General Securities Representative Exam, the most comprehensive financial securities exam offered by the FINRA *'' Series 7: The Conte ...
), these candidates must pass the ''Research Analyst Examination'' ( Series 86/87) in order to publish research for the purpose of selling or promoting publicly traded securities. For other jurisdictions, see List of securities examinations. For sector specialists – with approximately five years industry experience – less weight is placed on finance qualifications, as a relevant advanced degree or qualification in the field is often necessary. Equity Research Recruiting: The Definitive Guide
Luis Miguel Ochoa
(They will later be encouraged to earn the CFA, CIIA, or MBA.) For example, valuing financial service firms and valuing mining corporates requires specialized knowledge regarding their valuation-, regulatory-, and
accounting standard Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
s; and, respectively, qualifications in actuarial science, and mining engineering / geology will then be required. Other sectors may similarly require specific technical qualifications: e.g. in pharmacy / life sciences for "bio-tech"; in electronic engineering for (some) areas in " high tech", e.g. semiconductors. Most large teams will also include a CPA or CA in a dedicated technical role. (In
the Commonwealth The Commonwealth of Nations, simply referred to as the Commonwealth, is a political association of member states of the Commonwealth of Nations, 56 member states, the vast majority of which are former territorial evolution of the British Empire ...
, the CA qualification is often sufficient to access (junior) analyst roles.) Large trading houses, and banks, often employ an economics team, usually led by a PhD in the discipline, while a masters in economics is the typical requirement to join the team. This team produces the economic forecasts informing the various valuations and
investment strategy In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics an ...
; "Economic Analyst"
investopedia.com
see and
Economic analyst An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
. Banks often recruit analysts with accounting qualifications to the middle office roles.


See also

*
Accounting analyst An accounting analyst evaluates public company financial statements. Public companies issue these ( 10-K) annual financial statements as required by the Security and Exchange Commission. The statements include the balance sheet, the income state ...
*
Budget analyst A budget is a calculation play, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environmenta ...
* Cost analyst * Credit analyst *
Economic analyst An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
*
Financial manager A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
* Financial services * Quantitative analyst * Research report * Risk analyst *
Securities research Securities research is a discipline within the financial services industry. Securities research professionals are known most generally as "analysts", "research analysts", or "securities analysts"; all the foregoing terms are synonymous. Researc ...
*
Structurer In investment banking, a structurer Joris Luyendijk (2012)Interview: Head of Structuring equity-derivatives ''theguardian.com'' is the finance professional responsible for designing structured products. Their solution will typically deliver ...


Notes


Further reading


Lehman bust highlights analyst "group-think disease"
Elinor Comlay, reuters.com, Sep 10, 2009

US Bureau of Labor Statistics {{Authority control Financial services occupations Financial data analysis Valuation (finance) Finance occupations Financial analysts