Whether it is a start-up or an established firm, every business worries over its financial standing. Any company can avoid impending economic doom with proper analysis, planning, and accurate forecasting. A marketing strategy can only cover the loopholes in the business framework of a company with a financial plan.
A tried and tested method to prevent such financial disasters is financial analysis. Hiring a financial analyst can be amongst the most rewarding investments for any corporate firm. They take care of all the financial modelling responsibilities and give the corporation a profitable financial future.
In this article, we will break down the roles and responsibilities of a financial analyst and their importance in corporations.
What is financial analysis and what does a financial analyst do?
Financial analysis involves taking care of several finance-related functions like:
- Picking up on economic trends
- Evaluating investment opportunities
- Making long-term sustainable financial plans
- Analysing financial statements
- Reviewing expenditure
- Studying financial tendencies
- Predicting the future financial year
A financial analyst takes care of all these to ensure the corporations are always on top of their finances. Here are some of the key roles that financial analysts fulfil:
Collecting data and facts
Research is a primary part of any financial analyst’s job. Making any report or decision starts with extensive research for the data they need to analyse to come to any conclusion. The information gathered relates to the financial aspect that needs to be analysed. For instance, collecting information on stock prices, macroeconomics or microeconomics, cost histories, or any other type of quantitative data.
Any collected data can only be worked upon and analysed if it is first sorted and organised in a comprehensible manner. Therefore, after gathering facts and data, a financial analyst has to organise the data collected systematically in Excel datasheets so he/she can extract meaningful insight from them.
Analyse the data
All past data is thoroughly studied. Once the data has been organised, it is examined and analysed by the financial analyst. It may be numeric quantities like return on equity, earnings per share, and ratios of fixed vs variable costs.
Make financial predictions
One of the main goals of financial analysis is forecasting the finances for upcoming business quarters. An analyst applies numerous techniques to predict how the business will perform in the future based on its past performances and present situations, including its investments and profit returns. These techniques may include regression analysis or studying the previous annual growth rates.
Devise recommendations based on insights
The role of an analyst is not just to predict the financial future of a corporation. They are also responsible for giving recommendations based on the deep insights they gain through research on optimising the firm's financial performance. Such recommendations may include advice on cost-cutting, growing revenue, finding out better investment opportunities, and devising ways to optimise overall financial operations.
Generate financial reports
One of the regular responsibilities of a financial analyst is generating reports. These reports may be regarding the key performance indicators (KPI) to track performance, assess estimated budget vs actual budget and provide detailed reports on reasons for discrepancies. These reports need to be well-presented, technically accurate, and easily understandable.
Create and maintain spreadsheets
Besides generating specific reports, financial analysts also create and maintain several spreadsheets to store quantitative research data that aid analysis. They are sometimes tasked with creating models concerning better acquisition or investment spaces to increase ROI and sustain profits.
Coordinate with managers
To understand the performance and financial budgeting requirements, an analyst's job is to communicate and coordinate with project managers. Holding meetings to recognise variations in the performance of certain campaigns or projects is also a part of their job. It can help them spot financial shortcomings that may affect the business adversely.
Why do corporations need financial analysts?
Based upon all the functions a financial analyst performs, it is clear that he/she shoulders most of the financial modelling responsibilities for any corporation.
Corporations need financial analysts because they help a business assess and understand its financial condition and provide crucial insights that improve the firm’s profit returns. They are indispensable resources aiding the firm in navigating through finances and running internal operations more efficiently.
Financial analysis is a highly lucrative and in-demand career in all financial sectors, not just the corporate world. Every business needs a financial analyst to have a grasp over their financial standing, from banking sectors to private firms.
Become a financial analyst with Imarticus’ Financial Analysis Prodegree (FAP) and steer your career in the right direction. The degree programme gives you a thorough understanding of the subject. And, being a part-time degree, it offers you enough flexibility to juggle between your job or other commitments.