What does a financial analyst do?
According to the Bureau of Labor Statistics, financial analysts provide guidance to businesses and individuals making investment decisions. They assess the performance of stocks, bonds, and other types of investments.
Financial analysts typically do the following:
- Recommend individual investments and collections of investments, which are known as portfolios
- Evaluate current and historical financial data
- Study economic and business trends
- Examine a company’s financial statements to determine its value
- Meet with company officials to gain better insight into the company’s prospects
- Assess the strength of the management team
- Prepare written reports
Financial analysts evaluate investment opportunities. They work in banks, pension funds, mutual funds, securities firms, insurance companies, and other businesses. Financial analysts are also called securities analysts and investment analysts.
Financial analysts can be divided into two categories: buy-side analysts and sell-side analysts.
- Buy-side analysts develop investment strategies for companies that have a lot of money to invest. These companies, called institutional investors, include hedge funds, insurance companies, independent money managers, and nonprofit organizations with large endowments, such as some universities.
- Sell-side analysts advise financial services sales agents who sell stocks, bonds, and other investments.
Some analysts work for the business media or other research houses, which are independent from the buy and sell side.
Financial analysts generally focus on trends affecting a specific industry, geographical region, or type of product. For example, an analyst may focus on a subject area such as the energy industry, a world region such as Eastern Europe, or the foreign exchange market. They must understand how new regulations, policies, political situations, and economic trends may affect investments.
Investing is becoming more global, and some financial analysts specialize in a particular country or region. Companies want those financial analysts to understand the language, culture, business environment, and political conditions in the country or region that they cover.
The following are examples of types of financial analysts:
Portfolio managers select the mix of products, industries, and regions for their company’s investment portfolio. These managers are responsible for the overall performance of the portfolio. They are also expected to explain investment decisions and strategies in meetings with stakeholders.
Fund managers work exclusively with hedge funds or mutual funds. Both fund and portfolio managers frequently make buy or sell decisions in reaction to quickly changing market conditions.
Ratings analysts evaluate the ability of companies or governments to pay their debts, including bonds. On the basis of their evaluation, a management team rates the risk of a company or government not being able to repay its bonds.
Risk analysts evaluate the risk in investment decisions and determine how to manage unpredictability and limit potential losses. This job is carried out by making investment decisions such as selecting dissimilar stocks or having a combination of stocks, bonds, and mutual funds in a portfolio.