January 21, 2010
For those of you who are relatively new to the finance domain and are considering a career as a Financial Analyst, here we take a look at the who-how-what aspects of a Financial Analyst’s job:
You would easily encounter the term Financial Analyst if you follow any business newspapers like the wall street journal or in magazines like the economist.
If you are not an MBA or an economics major as an undergraduate, you should consider getting the Chartered Financial Analyst Charter.
The the CFA exam is somewhat technical in nature. If you straightaway look at a sample CFA exam, it would surely seem overwhelming. But if you do proper planning, get necessary guidance and give it the right execution then you can surely work your way up to clearing the CFA exam.
Within the investment industry, most analysts tend to work either for buy side investment firms, where they research stocks for an inhouse fund or sell side firms which write research reports for buy-side firms. Buy-side firms are investment houses that manage their own funds. In such companies, analysts fo a research on companies as they zero-in on the stocks to add to an investment fund. They also keep track of the stocks that are in a fund’s portfolio in order to determine when the fund’s position in that stock should be sold.
At a sell side firm, analysts evaluate and compare the quality of securities in a given sector, industry or domain. Based on this analysis, they make reports with certain recommendations like: buy, sell, strong buy, strong sell or hold. These recommendations carry a great deal of significance in the investment industry including analysts working within buy-side firms.
Even within these specialties, there are subcategories, like you’d find analysts who specialize in equities and those that specialize in analyzing fixed-income instruments. Many analysts also specialize even further within a specific sector or industry, for instance energy or technology.
However, the Analysts in investment banking firms differ from those mentioned above as they often play a role in determining whether or not certain deals are feasible based on the fundamentals of the companies involved in a deal. This type of analysis can include IPOs or mergers and acquisitions. Analysts assess present financial conditions as well as rely heavily on modeling and forecasting to make recommendations to senior partners as to whether or not a certain merger is appropriate for that investment bank’s client or whether another client of the investment bank should invest venture capital in a particular firm.
An Analyst very often needs to do a significant amount of travelling. Some analysts travel to companies to get a first-hand look at company processes on the ground level. They are also required to attend conferences with colleagues who share the same specialty as they do. This makes the work even more interesting.
When in the office, analysts get to know to be proficient with spreadsheets, relational databases and statistical and graphics packages in order to develop recommendations for senior management and to develop detailed presentations and financial reports that include forecasting, cost benefit analysis, trending and results analysis. Analysts also interpret financial transactions and must verify documents for their compliance with government regulations.
For senior analysts who continue to look for career advancement, there is the potential to become a portfolio manager, a partner in an investment bank or senior management in a retail bank or an insurance company. Some analysts may even go on to become financial consultants or investment advisors.
You must note the a career as a FA demands dedication and hard work but at the same time it gives the genuine satisfaction that comes from being an integral part of the business you are in, apart from the huge financial rewards it brings along.