What Does a Financial Analyst Do
A financial analyst is in charge of a variety of tasks, including data collection, information organization, historical data analysis, forecasting and projections, making recommendations, and creating Excel models, presentations, and reports. This guide will provide a detailed breakdown of a financial analyst's day-to-day activities and answer the question, "What does a financial analyst do?"
List of What a Financial Analyst Does:
Analysts have many duties and responsibilities, depending on the organization they work for, the industry they are in, and their seniority. Below is a list of the most common things they do:
#1 Gather data and information
The work of a financial analyst starts with gathering data and information about whatever they need to analyze. Examples include historical financial reports, accounting data from the general ledger, stock price information, statistics and macroeconomic data, industry research, and just about any other type of quantitative data. The information will be gathered from sources such as the company’s internal databases, third-party providers such as Bloomberg or Capital IQ, and government agencies such as the Securities and Exchange Commission (SEC).
#2 Organize information
Once the data is gathered it’s typically entered into Excel or some other type of database. Once inputted, the next task is to organize it, clean it up, and get it into a format it can be made sense of. This typically means sorting the numbers by data, or by category, adding formulas and functions to make sure it’s dynamic, and using consistent formatting styles so that it’s easy to read and understand. See more Excel formatting tips.
#3 Analyze financial results
With the data all cleaned up and organized in Excel, it’s time for the financial analyst to start analyzing past information and historical results. This typically includes looking at ratios and metrics like gross margin, net margin, fixed vs. variable costs, year-over-year (YoY) growth rates, return on equity (ROE), return on assets (ROA), debt/equity ratio, earnings per share (EPS), and many others. The analyst will look for trends and benchmark the performance against other companies in the same industry. When asking what does a financial analyst do, this is one of the biggest components!
#4 Make forecasts and projections
Now that historical information has been analyzed, it’s time to make projects and forecasts about how the company will perform in the future. There is both an art and a science to predict how a company will perform, and many assumptions and even leaps of faith have to be made. Common forecasting methods include regression analysis, year-over-year growth rates, as well as bottom-up and top-down approaches. Learn more in CFI’s Budgeting and Forecasting Course.
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#5 Develop recommendations
A good financial analyst is not only good with numbers but actually generates insights and recommendations on how to improve the operations of a business. Examples of helpful recommendations and insights include ways to cut costs, opportunities to grow revenue, ways to increase market share, operational efficiencies, customer satisfaction, and much more. This is what truly separates a world-class financial analyst from the rest. These recommendations will be presented to the CEO, the CFO, other executives, and/or the board of directors.
#6 Build Excel models
For analysts working in investment banking, equity research, corporate development, financial planning & analysis (FP&A), and other areas of corporate finance, financial modeling will be a big part of the job. These models typically start by linking the 3 financial statements and then layering on more advanced types of financial models such as discounted cash flow analysis (DCF models), internal planning models, and more arcane models such as LBO models and M&A models.
#7 Make presentations
When someone asks, what does a financial analyst do, the answer will always include something to do with making presentations (often in PowerPoint). The analysis that’s completed in Excel then has to be turned into charts and graphs, which can then be inserted into pitchbooks and management presentations. Learn more in CFI’s PowerPoint Presentations Course.
#8 Generate reports
Internal reports and dashboards are a part of the daily life of an analyst. Whether it’s presenting key performance indicators (KPIs) or tracking actual vs. budgeted results, it’s imperative to the company or the client that information be clearly presented, timely, easy to understand, accurate, and insightful. To learn more, check out CFI’s Dashboards Course.
Types of Financial Analysts
Below is a list of the most common types of financial analysts: