Last updated on July 25th, 2024 at 10:21 am
Financial analysts help their organisations or clients make informed investment decisions and also perform in-depth research. These jobs are common in big businesses such as insurance organisations and investment banks and require strong mathematical and analytical skills. Aspirants can opt for additional financial certification courses like CPA to land financial analysis roles and command a high CPA salary in India.
With that said, let us take a further look into the essentials of financial analysis.
What is financial analysis?
Financial analysis is the process of evaluating companies, projects, budgets, and other finance-related transactions to determine their viability and suitability.
It is used to determine whether a business is financially sound, stable, able to pay off debt, and profitable enough to warrant investment.
How to Pursue a Career as a Financial Analyst
You can become a financial analyst through education and early professional experiences; for example, you can invest in a financial analysis course to pursue finance career options.
The majority of entry-level jobs in the finance sector require a bachelor’s degree in business administration, finance, accounting or a related discipline such as general business, economics, or statistics.
Senior financial analysts often focus on direct engagement with high-level clients, managing firms, and creating marketing strategies to acquire new customers.A Certified Public Accountant is one of the many jobs that come under the financial analyst umbrella. The job is lucrative as the average CPA salary in India for freshers is around INR 6.8 LPA.
Necessary Skills and Education
Some of the skills that you need to thrive in jobs in the finance sector include various technical and soft skills, such as:
Technical skills
Financial statement analysis
As a financial analyst, it’s important to have extensive knowledge of income statements, balance sheets, and cash flow statements. Knowledge of these aspects can help you analyse a company’s liquidity, solvency, and profitability.
Financial modelling:
If you want to delve into finance career options then it is important that you know how to build and interpret various financial models, as they can help you forecast a company’s future performance based on a variety of situations.
Soft skills
Attention to detail
Jobs in the finance sector require a keen eye, as serious compilation errors might result from overlooking a minor detail. This can lead to significant miscalculations. Therefore, it is important to be careful.
Communication
All the best careers in finance require solid communication skills, as good communication helps you easily communicate data with stakeholders.
Importance of Financial Analysis
Financial analysis is important for various reasons, with some of them being:
- Assessing a business's profitability and earnings prospects: Financial analysis helps verify whether a company’s earnings meet or exceed the set expectations. It also helps determine profit trends and assess the company’s earning potential.
- Evaluate the financial robustness of the business: Financial analysis helps evaluate a company’s financial health and its impact on the market.
- Beneficial for the management: With financial analysis, you can gain thorough insight into a company’s management and help it make vital business decisions.
Categories of Financial Analysis
Some of the common types of financial analysis are:
1. External analysis
This type of analysis is performed by investors, stakeholders, and researchers who depend on information published in reports like the Statement of Profit and Loss and Balance Sheet, as they lack access to internal and confidential business data.
2. Internal analysis
In comparison to external analysis, you can use this kind of analysis to carry out internal management and conduct a thorough analysis to access precise and in-depth information since you have full access to confidential business data.
3. Horizontal analysis
You can use horizontal analysis from multiple years to determine how profitable your company is and how fast it is expanding. This process is also known as time series analysis or dynamic analysis.
4. Vertical analysis
Vertical analysis, also known as cross-sectional analysis or static analysis, is the study of a single year’s worth of financial statements. It includes examining the connections between balance sheets, statements of profit and loss, and other things within a single financial year.
5. Ratio analysis
You can use ratio analysis to examine the correlations between several financial parameters to learn more about a business's efficiency, financial health, and performance. It mainly helps assess a business's liquidity, profitability, operational efficiency, and solvency.
Conclusion
A career as a financial analyst is lucrative since financial analysis is growing rapidly, and so is the hiring demand for financial analysts.
Meanwhile, thanks to an increase in access to education opportunities, you can easily find various online and offline courses to polish your skills or learn more about financial analysis.
So, if you want to start a career in financial services or corporate finance, why not enrol in Imarticus Learning’s Postgraduate Financial Analysis Programme! Visit Imarticus Learning and join our financial analysis course today to kickstart your financial analyst career and find the best path to your preferred jobs in the finance sector.
FAQs
- What are the three types of financial analysis?
The three most vital financial analyses are horizontal, vertical, and ratio analysis.
- What are the roles of a financial analyst?
As a financial analyst, you can work in some of the best careers in finance, including roles in insurance companies, pension funds, banks, and various other businesses. Financial analysts mainly assess stock performances, investments, and various types of bonds.
- What are the three main financial statements called?
The three main financial statements are called income statement, balance sheet, and statement of cash flow. These aforementioned functions are informative tools that traders use to assess a company’s financial well-being and offers a concise overview of the company’s worth.
- What is financial analysis also known as?
Financial analysis is also known as accounting analysis, financial statement analysis, or analysis of finance. All of these refer to the assessment of stability, viability, and profitability of a project, business, or sub-business.
