A financial analyst is a professional who provides investment advice to businesses. Financial analysts work in banks, pension and mutual funds, security firms and insurance companies. When meeting with company officials, analysts learn more about the firms they seek to invest. After the meetings and review of the company’s financial documents, they assess the performance of the company’s stock, bonds, commodities, and other types of investments. Finally, the analyst makes a recommendation whether to buy, sell or hold that firm’s stock.
Additionally, financial analysts focus on how market trends impact a specific industry, region or type of product. For instance, an analyst may focus on the utilities industry in Latin America. In some firms with large research departments, they assign analysts to work in even narrower subject areas. Analysts must understand how regulations, policies, political and economic trends impact investments.
Types of analysts
An analyst can operate from the buy side or the sell side. As a buy-side analyst, they will usually be employed to develop investment strategies for mutual and hedge funds, independent money managers, large non-profit organizations and insurance companies.
Sell-side analysts work for retail banks or brokerage firms to give investment advice for their firm’s clients. These analysts must be objective and neutral in their recommendations.
Areas of interest
A financial analyst may focus on certain areas including:
• Working in an investment bank where one analyzes companies to provide assistance when one plans to issue stock to the public for the first time. Analysts also study the pros and cons of a company merger and when one company buys out another.
• Working as a rating analyst to evaluate the degree of risk for companies or governments that issue bonds. For instance, a management team reviews the risks of a company or government to pay back interest over the life of the bonds, as well as its principal.
• Working as a risk analyst to evaluate the risks associated with making financial decisions including forecasting possible losses. Additionally, they make recommendations on how to minimize those losses by diversifying investments, hedging strategies, currency futures, derivatives, short selling, and other investment options.
• Working as a financial consultant for another company to review their costs, credit and budgets.
A financial analyst works in an office, and they often work long hours during evenings and weekends to reach deadlines. They often must travel to meet with company executives or potential investors. While back in the office, their work is filled with telephone calls and meetings. Only after office hours can they perform research, or when they are free from interruptions, phone calls and meetings.
Their job requires statistical software packages and spreadsheets to analyze financial data, to spot trends, to create portfolios, and to develop forecasts. With the findings, they can measure the financial risks, and make a recommendation to sell, hold or buy the particular investment.
Qualifications
A financial analyst requires a bachelor’s degree in related field, such as finance, business, accounting, economics or statistics. As this profession is highly competitive, a potential candidate must understand statistics, economics and business. Furthermore, if they have knowledge in corporate budgeting, accounting policies and procedures, and methods of financial analysis, the chances of employment are higher.
Many positions require a candidate to have a master’s degree in finance or business. A potential candidate must also have advanced courses in bond valuation, options pricing, and risk management.
Depending on positions, analysts may require professional licenses or certifications, such as a CFA after hired.
Other requirements
Financial analysts require strong skills in math, computer and problem solving. Furthermore, they must project confidence, maturity, independence and have good communication and people skills as they will spend most of their time dealing with clients.
Job prospects
According to the Bureau of Labor Statistics, the employment for analysts is expected to increase by 20 percent during the ten year period from 2008 – 2018, as banks and mutual fund companies need more analysts to assist them in selling and buying stocks.
As of May 2010, Occupational Employment Wages of the Bureau of Labor Statistics reported that financial analysts earn an average of $ 86,040 in salary per year. Earnings in specialized areas are greater.
