Financial Analyst

Financial analyst
A financial analyst, securities analyst, research analyst, equity analyst, or investment
analyst is a person who performs financial analysis for external or internal clients as a core part
of the job.
Contents
 1 Job
 2 Qualification
 3 Controversies about financing

Job
Writing reports or notes expressing opinions is always a part of "sell-side" (brokerage) analyst
job and is often not required for "buy-side" (investment firms) analysts. Traditionally, analysts
use fundamental analysis principles but technical chart analysis and tactical evaluation of the
market environment are also routine. Often at the end of the assessment of analyzed securities,
an analyst would provide a rating recommending an investment action, e.g. to buy, sell, or hold
the security.
The analysts obtain information by studying public records and filings by the company, as well
as by participating in public conference calls where they can ask direct questions to the
management. Additional information can be also received in small group or one-on-one meetings
with senior members of management teams. However in many markets such information
gathering became difficult and potentially illegal due to legislative changes brought upon by
corporate scandals in the early 2000s. One example is Regulation FD (Fair Disclosure) in the
United States. Many other developed countries also adopted similar rules.
Financial analysts are often employed by mutual and pension funds, hedge funds, securities
firms, banks, insurance companies, and other businesses, helping these companies or their clients
make investment decisions. Financial analysts employed in commercial lending perform
"balance sheet analysis," examining the audited financial statements and corollary data in order
to assess lending risks. In a stock brokerage house or in an investment bank, they read company
financial statements and analyze commodity prices, sales, costs, expenses, and tax rates in order
to determine a company's value and project future earnings. In any of these various institutions,
the analyst often meets with company officials to gain a better insight into a company's prospects
and to determine the company's managerial effectiveness. Usually, financial analysts study an
entire industry, assessing current trends in business practices, products, and industry competition.
They must keep abreast of new regulations or policies that may affect the industry, as well as
monitor the economy to determine its effect on earnings.
Financial analysts use spreadsheet and statistical software packages to analyze financial data,
spot trends, and develop forecasts; see Financial modeling. On the basis of their results, they
write reports and make presentations, usually making recommendations to buy or sell a particular
investment or security. Senior analysts may actually make the decision to buy or sell for the
company or client if they are the ones responsible for managing the assets. Other analysts use the
data to measure the financial risks associated with making a particular investment decision.
Financial analysts in investment banking departments of securities or banking firms often work
in teams, analyzing the future prospects of companies that want to sell shares to the public for the
first time. They also ensure that the forms and written materials necessary for compliance with
Securities and Exchange Commission regulations are accurate and complete. They may make
presentations to prospective investors about the merits of investing in the new company.
Financial analysts also work in mergers and acquisitions departments, preparing analyses on the
costs and benefits of a proposed merger or takeover. There are buy-side analysts and sell-side
analysts.
Some financial analysts collect industry data (mainly balance sheet, income statement and capital
adequacy in banking sector), merger and acquisition history and financial news for their clients.
They normally standardize the different companies data to look uniform and facilitate their
clients to do peer analysis. Their main objective is to enable their clients to make better decisions
about the investment across different regions. They also provide the abundance of financial ratios
calculated from the data that they gather from the financial statements that help clients to read
the bottom line of the company. Many people mix up this with the data entry job but actually its
far away from just data entry.
Some financial analysts, called ratings analysts (who are often employees of ratings agencies),
evaluate the ability of companies or governments that issue bonds to repay their debt. On the
basis of their evaluation, a management team assigns a rating to a company's or government's
bonds. Other financial analysts perform budget, cost, and credit analysis as part of their
responsibilities.
Qualification
Although there are no formal qualification criteria, analysts usually have graduate level training
in finance such as Master of Science in Finance (MSF) or MBA degrees, or are qualified
accountants (ie. CMA,CCA,ACCA, CGA or CA designation). "Industry experience" is often a
pre-requisite and so analysts often have undergraduate degrees in related fields. Also, many
analysts originally enter this domain through their practice as consultants or accountants and so a
very wide range of qualifications is common.
In some firms, it is (additionally) preferred that analysts earn a professional certification such as
the Chartered Financial Analyst (CFA) designation, or the Certified International Investment
Analyst (CIIA) designation. However, professional designation is rarely a requirement, and
many have reached the peak of the profession without ever sitting for the CFA or the CIIA exam.
There are also often regulatory requirements relating to the profession. For example, in the
United States, sell-side or Wall Street research analysts must register with the Financial Industry
Regulatory Authority (FINRA). In addition to passing the General Securities Representative
Exam, candidates must pass the Research Analyst Examination (series 86/series87) in order to
publish research for the purpose of selling or promoting publicly traded securities.
Basic analytical skills, and strong numerical skills. Importantly, communication skills are
necessary to explain complex concepts to management or clients.
Controversies about financing
Analyst recommendations on stocks owned by firms employing them may be seen as potentially
biased. This may be less of an issue with analysts employed by firms that do not own the
recommended stocks.
The research department sometimes doesn't have the ability to bring in enough money to be a
self-sustaining research company. The research analysts department is therefore sometimes a unit
of an investment, investment brokerage, or investment advisory firm.
Since 2002 there has been extra effort to overcome perceived conflicts of interest between the
investment part of the firm and the public and client research part of the firm (see accounting
scandals). For example, research firms are sometimes separated into two categories, brokerage
and independent. Independent researchers are not part of an investment firm and so don't have
the same incentive to issue overly favorable views on companies. But this might not be sufficient
to avoid all conflicts of interest.
Debate still exists about the way sell-side analysts are paid. Usually brokerage fees pay for their
research. But this creates a temptation for analysts to act as stock sellers and to lure investors into
"overtrading."
Some consider that it would be sounder if investors had to pay financial research separately and
directly to fully independent research firms.