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How to Become a Financial Analyst

Financial analysts offer detailed guidance to businesses and individuals about investment decisions. They gauge the performance of stocks, bonds, and many other types of investments. (BLS.gov). They also study the strength of individual businesses to determine if they are suitable for investment.

Financial analysts usually have the following tasks:

  • Provide recommendations for individual investments and investment portfolios to businesses and individuals.
  • Perform analyses of current and historical financial information of companies.
  • Study business and economic trends before making investment recommendations.
  • Examine an entity’s financial statements to determine its value.
  • Meet with organization officials to obtain a better insight into the prospects of the company.
  • Assess how strong the management team is.

As a financial analyst, you primarily will evaluate investment opportunities. You can work in a bank, pension fund, insurance company, securities firm, and related businesses. Another term for a financial analyst is a securities analyst or investment analyst.

Some of the specific jobs within financial analysis you can obtain with experience are portfolio manager, fund manager, rating analyst, and risk analyst.

If you are thinking about a career as a financial analyst, below is important information about the field.

What Is Financial Analysis?

Financial analysis is a method of evaluating budgets, projects, businesses, and related financial transactions to determine their suitability and performance. Financial analysis is used to study whether an organization is stable, solvent, liquid, and/or profitable enough to warrant an investment. (Investopedia.com).

Financial analysts use financial analysis to evaluate economic trends, establish financial policy, construct long-term financial plans for businesses, and find suitable projects and companies for investment. This is done by the financial analyst synthesizing data and financial numbers of an institution, such as the income statement, balance sheet, and cash flow statement. A financial analyst can perform their work on corporate finance and investment finance projects.

What Do Financial Analysts Do?

When studying the financial health of an organization, below are the key areas that financial analysts focus on: (Americanexpress.com)

  • Revenues are most companies’ primary source of cash. The quantity, quality, and timing of company revenues are important to understand for the financial analyst because they usually determine the business’s long-term success.
  • Profits are what is left after expenses such as overhead, salaries, and benefits have been allocated. If a company is not making a profit, it probably will not survive for very long.
  • Operational efficiency measures how well the company is using its’ resources. Poor operational efficiency leads to weaker growth and smaller profits.
  • Capital efficiency and solvency are of great interest to lenders and investors. Of critical importance is the return on equity, which is the return investors generate from the business, and debt to equity, which is how much leverage is used to operate.
  • Liquidity analysis studies the ability of the company to generate enough cash to cover expenses. No matter how much revenue growth or profits there are, they cannot compensate for lack of liquidity.

Where Do Financial Analysts Work?

The Bureau of Labor Statistics reports there are 329,500 financial analysts working in the US as of 2018. Most are employed in these areas: (BLS.gov)

  • Securities, commodity contracts, and related financial investments: 23%
  • Professional, scientific, and technical services: 13%
  • Credit intermediation and related activities: 12%
  • Management of companies and enterprises: 12%
  • Insurance carriers and related activities: 6%

According to Glassdoor.com, below are some of the top companies for which financial analysts can work: (Glassdoor.com)

  • Cisco
  • Goldman Sachs
  • Deloitte
  • Travelers
  • Boston Consulting Group
  • Edward Jones
  • HP
  • Morgan Stanley
  • Kaiser Permanente
  • Citi

What Is the Job Outlook for Financial Analysts?

The Bureau of Labor Statistics states employment for financial analysts will rise by 6% through 2028, which is about as fast as average. There are more financial products being offered today, so there is a greater need for knowledge of certain geographic areas where employment growth will be the strongest. (BLS.gov).

See also Financial Analyst Salary Outlook

Demand for financial analysts has been stronger in the past few years as economic activity has increased. Financial analysts are needed to review investment opportunities when new companies open and existing ones expand. Also, emerging markets around the world have new investment opportunities that require knowledge where those markets exist.

Demand for financial analysts also is rising from the increase of ‘big data’ and improvements in technology that allow analysts access to more data and perform better financial analyses. This advanced financial analysis will help companies to better manage their finances, identify intriguing investment opportunities, and deliver superior products and services to customers.

How Can You Become a Financial Analyst?

Most financial analysts first earn a bachelor’s degree with majors in accounting, finance, economics, statistics, or mathematics. To advance in the field, an MBA in finance or accounting is a good investment.

See Top Ranked Online Master’s in Business Analytics Degrees

You also may want to earn a Master’s in Finance, which offers a more in-depth study of finance than the MBA alone. (BLS.gov)

When you start in the career, most financial analysts begin by specializing in certain types of investments. As they get more experienced, they might move into portfolio management and choose the types of investments in a company’s portfolio. The most advanced financial analysts may become fund managers, where they manage larger portfolios of investments for individuals. Professionals at this level have an MBA or Master’s in Finance in most cases.

What Do Exams and Licensing Involve?

The financial services industry is heavily regulated. The Financial Industry Regulatory Authority (FINRA) is the major licensing organization for the securities industry in the United States. A license is almost always required to sell financial products, which applies to many financial analyst jobs. Most of these licenses require company sponsorship, so most of them do not expect you to have such licenses when you begin.

To advance in the field, most employers recommend certification, which can boost your chances of getting involved in portfolio management later.

An excellent certification to consider is the Chartered Financial Analyst (CFA) certification. A financial analyst can become CFA certified with a bachelor’s degree, four years of financial-related work experience, and pass three examinations.