Day: February 7, 2024

How do leading financial institutions safeguard themselves when it comes to unpredictable market fluctuations and potential financial downturns? 

All these firms highly rely on Financial Risk Managers (FRMs) to journey through these fluctuations. As financial instruments grow and global markets remain unpredictable, the role of an FRM becomes increasingly crucial and indispensable. Tasked with foreseeing potential risks and threats and fortifying an organisation’s defence against them, an FRM is considered to be a protector as well as a strategist. 

In this article, we will unravel the intricate responsibilities and the expertise that is required to thrive in this dynamic role. Let’s start with understanding what is Financial Risk Management. 

Who is a Financial Risk Manager?

A Financial Risk Manager is someone who must analyse and identify the threats that the organisation faces, which can affect their success. Their role is important, especially with the financial landscape continuously changing and evolving. 

The Role and Responsibilities of a Financial Risk Manager

Financial risk managers work in sectors like sales, trading, marketing, private banking, loan origination, financial services, and more. Many even specialise in particular areas like market risk or credit.

• Risk Assessment

• Collaborate with organisations to identify potential risks that could threaten their financial stability.
• Evaluate the severity and nature of these risks, considering both internal and external factors.
• Prioritise risks based on their potential impact, helping businesses allocate resources effectively.

• Risk Management Strategy Development

• Design and implement strategies tailored to address the specific risks identified.
• Ensure these strategies align with the organisation’s overall objectives and risk appetite.

• Ongoing Monitoring

• Establish mechanisms to track key risk indicators and identify emerging risks.
• Conduct regular reviews and updates to the risk management framework to ensure businesses remain proactive in managing risks.
• Adapt strategies to changing circumstances, ensuring the organisation is always prepared for potential threats.

• Collaboration and Communications

• Work closely with various departments within an organisation to ensure a cohesive approach to risk management.
• Communicate findings, insights, and strategies to stakeholders, ensuring they are informed and aligned with the risk management approach.

• Utilisation of Advanced Tools and Technologies

• Utilise cutting-edge analytics tools, along with artificial intelligence (AI) and machine learning, to improve the detection, forecasting, and handling of risks.
• Stay updated with the newest technological innovations in risk management to guarantee that the organisation is utilising the most effective tools on offer.

• Compliance and Regulation

• Ensure that the organisation’s risk management practices adhere to industry regulations and standards.
• Stay updated with changes in financial regulations and standards, ensuring the organisation remains compliant.

• Continuous Learning and Development

• Continuously learn to stay updated with the latest challenges, trends, and best practices in the field of financial risk management.
• Attend workshops and seminars to gain insights and knowledge from industry experts and stay constantly updated. 

• Crisis Management

• In the event of a financial crisis or significant risk event, lead the organisation’s response efforts.
• Develop and implement crisis management plans to mitigate the impact and ensure the organisation’s swift recovery.

Evolution and Modern Challenges

The field of risk consulting comes with a lot of responsibilities. Traditional risks have now been replaced by newer, more complex challenges brought about by digitalisation and global interconnectedness. Today’s risk consultants not only assess financial risks but also strategic, operational, and reputational risks. Cyber threats, regulatory compliance complexities, and the challenges posed by the digital age have expanded the scope of risk management.

How to Become a Risk Manager

Educational Background

• Graduation: Begin with an undergraduate degree in finance or a similar discipline. This foundational understanding is crucial for grasping the nuances of financial risk management.
• Specialised Courses: Consider enrolling in IIM Lucknow FRM certificate courses that focus on financial risk management. These courses, along with a course on capital markets, are highly regarded and can provide you with a competitive edge.

Gain Relevant Experience:

• Entry-Level Positions: Start in roles related to finance, sales, or trading. This will provide you with a practical understanding of risk management.
• Specialised Roles: As you progress, specialise in roles that focus on risk assessment and management.

Pursue Advanced Certifications:

• FRM Certification: Offered by GARP, the FRM designation is considered the “gold standard” in the industry. To earn this FRM certification:

• Pass the FRM Exam, which consists of two parts covering topics like risk management foundations, quantitative analysis, financial markets, and more.
• Work full-time in a financial risk role for at least two years.
• Demonstrate your experience with GARP by describing your professional role in financial risk management.

Develop Essential Skills:

• Analytical Skills: Analyse data and financial markets to forecast changes and identify potential risks.
• Decision-Making: Use the insights gained from courses like those offered by IIM Lucknow to make informed decisions.
• Communication: Clearly convey your findings and strategies to stakeholders.

To Sum Up

As financial markets become more intricate and global economies interconnect, the need for professionals who can navigate these complexities becomes paramount. FRMs, with their specialised knowledge and skillset, not only shield organisations from potential threats but also guide them towards sustainable growth. 

For students aspiring to carve a niche for themselves in the sector, the journey promises to be both challenging and fulfilling. With the financial realm undergoing constant transformation, one must ponder: Are you equipped to lead the charge in this ever-shifting landscape, ensuring steadiness amidst the uncertainties?

Choosing a career path in the realm of finance can be both exciting and challenging. Two of the most prominent positions that capture the attention of aspiring financial professionals are none other than equity research and investment banking. 

Although both these positions play critical roles in the finance industry, when it comes to responsibilities, skill sets, and career trajectories, there are quite a few differences between them. 

If you, too, are someone who still has not been able to decide which career path to pursue between these two, then don’t worry; we have got you covered. 

In this below-mentioned article, we will take you through a detailed guide exploring the details of both equity research and investment banking so that you can make a well-informed decision. 

What Is Equity Research?

Equity research can be described as a form of financial analysis that involves studying market trends and interpreting stock prices to help portfolio managers make well-informed investment decisions. 

As an equity research analyst, you will be required to bridge the gap between financial markets and investors by providing valuable insights to guide investment decisions. In addition to this, equity research analysts are also entrusted with the responsibility of identifying any underlying patterns within current market changes and using the gathered information to create algorithms that highlight profitable stock investment opportunities. 

In order to be successful in this field, financial professionals must possess a blend of data interpretation and problem-solving skills, alongside a detailed knowledge of various other financial tools. 

Career Prospects in Equity Research

As of 2023, the demand for equity research analysts is increasing at an unprecedented rate. In fact, did you know that according to a recent survey, the employment rate of market research analysts is estimated to witness a growth of 13% by the end of the year 2032?

On that note, mentioned below are some of the many career paths that you can explore in the domain of equity research.

Market Research Analyst

Market research analysts are entrusted with the responsibility of leading the buy-side and sell-side research for the company. In addition to this, they are also required to thoroughly analyse all the current as well as upcoming market trends and prepare reports on the same to help businesses make informed decisions. 

The average salary of a market research analyst is currently estimated at INR 4 lakh per annum. 

Sector Research Specialist

As a sector research specialist, you will be required to conduct thorough research on areas as specified by the fund manager and prepare reports on the same by consolidating information from various sources.

The current average salary of a sector research specialist is INR 4.6 lakhs per annum.

Senior Equity Research Analyst

Last but definitely not least, senior equity research analysts are required to mentor the junior analyst team, providing them with the necessary guidance and skill set required to perform their duties efficiently. 

On average, a senior equity research analyst is expected to earn compensation amounting to INR 10.9 lakhs per annum.

What Is Investment Banking?

On the other side of the spectrum is investment banking, a field that is primarily focused on capital creation, debt underwriting and equity for corporations of all types. 

Think of investment bankers as the architects behind the mergers, acquisitions, capital raising and other financial transactions. They play a crucial role in understanding the client’s financial needs and providing them with the required strategic financial advice. 

In order to pursue a successful career in the domain of investment banking, you must be organised and quick on your feet. This is primarily because this field mainly operates in a fast-paced and high-pressure environment. The deadlines are tight, and professionals need to be adept at managing multiple tasks simultaneously. In addition to this, you are also required to possess a strong knowledge of various complex financial models to evaluate potential deals. 

Career Prospects in Investment Banking

The global market for investment banking is estimated to witness a CAGR of 10.8%, amounting to as much as $213.6 billion by the end of the year 2032.

Mentioned below are some of the many career paths that you can explore in this vast realm of investment banking.

Banker

Bankers can be described as professionals who are adept at handling a firm’s private and business clients. From overseeing the management of investment portfolios to offering valuable advice to clients, everything falls under the realm of the responsibility of a banker. 

The current average salary of a banker in India is currently estimated at INR 6-8 lakhs per annum.

Branch Manager

Branch managers are required to manage the day-to-day operations of a bank or any other financial institution. This includes training and supervision of all employees, as well as ensuring optimal quality of service and assistance to customers.

Presently, the average salary of a branch manager in India is estimated to be INR 11,50,000 per annum.

Financial Planner

Financial planners can be described as individuals who are responsible for helping clients perfect all their financial plans and manage their money. From setting up an account in the bank to choosing investment portfolios and managing risks, everything falls under the role and responsibility of a financial planner. 

The average salary for financial planners currently in India is INR 5,71,149 per annum.

Equity Research Vs Investment Banking: Making The Choice

The ultimate decision of choosing between equity research and investment banking boils down to your individual needs, interests and skill sets. 

Equity Research	Investment Banking
As an equity research analyst, you will primarily have a backend job.	Investment bankers, on the other hand, get to enjoy the limelight.
Equity research can offer a much better work-life balance when compared to most other professions.	Investment banking is notoriously known for its demanding work hours.
Equity research can lead to roles such as portfolio management or investment analysis.	Investment banking often serves as a launchpad for various high-level finance positions.
To excel in this field, individuals must possess great research abilities, a good analytical mindset and decisive thinking.	Investment bankers are required to be extremely flexible, have statistical talents, and need specific financial capabilities.

 

Conclusion

Wrapping it all up, both these fields offer rewarding opportunities in the vast arena of the finance industry, each with its own specific challenges and advantages. The key is to assess your goals thoroughly and ensure that they are in perfect sync with the skills and demands of each role. Whether you find yourself in the analytical world of equity research or the dynamic field of investment banking, with the right skill set and knowledge, you are guaranteed to enjoy quite a blooming career in finance. 

With that being said, we present to you the Financial Analysis course offered by Imarticus Learning in collaboration with KPMG. In this four-month program, you will get to explore all the intricacies of the finance world via live virtual training. In addition to this, it also brings forth several advantages, including hands-on training by industry experts, extensive career support, industry certification, and more!

Knowing the concepts of numbers is critical in accounting and finance. Statements of finances are the company’s economic pulse, providing insight into its success and possible growth prospects.

Financial statement analysis is a multifaceted process that entails assessing an organisation’s financial stability and potential threats. We will lead you across the crucial elements of financial statements, such as the balance sheet, income statement and cash flow statement, in this comprehensive article. You’ll learn to calculate and apply key financial statistics to assess liquidity, earnings, effectiveness and solvency. 

This article will not only be an excellent resource for those seeking a career as a CMA, but it will also equip them with a solid basis for the Certified Management Accountant Course. The Certified Management Accountant (CMA) credential is highly acknowledged in managerial finance and accounting, displaying your expertise in managing finances, planning for success and making decisions. 

Understanding Financial Statements

Financial statement analysis is critical for evaluating a business’s economic condition and success. Organisations often generate financial statements quarterly and annually to offer a view of their financial status, revenue and cash flow. The Balance Sheet, Income Statement and Statement of Cash Flows are the three basic financial statements. 

The Balance Sheet

The balance sheet summarises a business’s financial status in terms of book value. It is divided into three sections: finances, assets and shareholders’ equity. Short-term resources such as finances and accounts payable can disclose much about a company’s operational success; liabilities include the company’s spending plans and shareholders’ equity. The balance sheet must reconcile assets and liabilities in order to equalise shareholders’ equity. This amount is regarded as a company’s book value and is a key performance statistic that rises and falls in tandem with a company’s financial activity.

Income Statement

The income statement compares the earnings of a business towards its expenditures to get the bottom line, which is the total profit or loss. The income statement is divided into three sections that aid in analysing company performance at three points. Calculating gross profit starts with income and the direct expenses linked to that income. It then continues on to operational profit, which is calculated by deducting indirect costs such as marketing costs, charges and inflation. Finally, net income is calculated after deducting taxation and interest.

Cash Flow Statement

The cash flow statement summarises the cash flows generated by the organisation’s business operations, investments and financing operations. The net profit is moved to the cash flow statement as the highest category for economic operations. 

Analysing Liquidity and Solvency

The measurement of liquidity and solvency ratios is crucial for establishing an organisation’s ability to meet its current and future financial obligations. These ratios give insight into the economic sustainability and vulnerability of an organisation.

Liquidity Ratios

The current ratio measures a business’s ability to meet its present debts with existing equity. A ratio higher than one demonstrates a company’s capacity to meet its immediate duties easily.

Profitability Ratios

The gross profit margin is the percentage of income left after deducting the costs of items sold. A larger margin shows that procedures and pricing methods are efficient.

Solvency Ratios

The ratio of debt to equity measures the total debt of a business to the equity of the owners. A larger ratio indicates increased financial leverage, which can be harmful.

Efficiency Ratios

The ratio of inventory turnover determines how rapidly a business sells its stock over a particular time duration. A higher turnover ratio indicates better handling of inventory. 

How to Conduct an Analysis of Financial Statements

Financial statement analysis is essential for lenders, shareholders and business owners. It aids in the evaluation of the financial condition of a business, its efficiency and risk factors. Here’s a step-by-step strategy for conducting a thorough fiscal statement evaluation:

Examine the Company’s Goals

Examining a company’s aims can help to clarify its economic expectations. It is critical to verify that the data provided on a financial report is consistent with the firm’s objectives. You can determine whether the company’s income and expenses meet its goals.

Choose an Analytical Method

Determine the right method for performing financial statement analysis. You can determine which facts to gather, analyse and interpret with the proper procedure. Horizontal, vertical and ratio analysis are the three most prevalent financial evaluation procedures. Here are some approaches for performing these kinds of analyses:

Performing a Vertical Analysis

First, choose a financial statement to examine. Data from the present year and past years can be analysed. Consider examining the numbers in the identical column. You could focus on total earnings and expenditures. 

Performing a Horizontal Analysis

Collect existing or past statements of finances that you need to study before beginning a horizontal analysis. You may compare two similar categories to see how they differ. For example, you can see if sales improved or dropped over a given time period. You may also use horizontal analysis to find patterns that could help you make good business choices. It can also aid in budgeting for future expenditures.

Performing a Ratio Analysis

To begin a ratio analysis, decide the ratios you wish to identify. This approach can be used to calculate debt-to-income, availability and ratios for profitability. After calculating the ratios, match them to the preceding ratios. It may offer a summary of the company’s profit or loss.

Examine Industry Standards

Understanding industry standards can be beneficial. Every business’s financial standing may differ. It might assist you in analysing how the company performs in the industry. Analysing norms in the sector may also aid in the implementation of plans that are in line with present business developments.

Conclusion

To summarise, financial statement analysis is an efficient tool that enables people, shareholders, lenders and corporate leaders to make sensible choices that can affect the future. Any professional’s portfolio should include the ability to understand economic information, assess the financial stability of a business, and identify possibilities and hazards.

We hope you found this article useful in your effort to understand financial statement analysis and are ready for the US CMA course. You are definitely on the road to a lucrative and fulfilling career in managerial and financial accounting with your devotion, interest and the insights discovered here. 

Imarticus Learning offers a Certified Management Accountant programme that prepares individuals for a career as a Management Accountant. The CMA programme is a high-level certification for finance and accounting experts.