Financial analyst

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A financial analyst is a person who performs financial analysis for external or internal financial clients as a core part of the job. The role may alternatively be titled securities analyst, research analyst, equity analyst, investment analyst, or rating analyst.


Financial analysts are employed by mutual- and pension funds, hedge funds, securities firms, banks, investment banks, insurance companies, and other businesses, helping these companies or their clients make investment decisions. Corporate finance analysts (additionally) perform budget and cost modelling as part of their responsibilities; credit analysis is likewise a distinct area.

(The term “financial analyst” is not usually taken to include quantitative analysts, or “quants”; typically, these are concerned with derivatives and fixed income analysis, and focus on mathematical modeling as opposed to accounting-related analytics.)

Financial analysts invariably use spreadsheets (and statistical software packages) to analyze financial data, spot trends, and develop forecasts; see Financial modeling. The analyst often also meets with company officials to gain a better insight into a company's prospects and to determine the company's managerial effectiveness.

Securities firmsEdit

In a stock brokerage house or investment bank, the analyst will 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. On the basis of their results, they write reports and make presentations, usually making recommendations to buy or sell a particular investment or security.

Typically, at the end of the assessment, an analyst would provide a rating recommending or investment action, e.g. to buy, sell, or hold the 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, "junior" analysts use the data to model and measure the financial risks associated with making a particular investment decision. See Securities research#Career path.

Usually, financial analysts study an entire industry ("sector specialist"), 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. A 1999 paper by Ezra Zuckermann found that, as equity analysts divide securities by discrete sectors, companies which fall outside or across multiple sectors are punished in the ratings of analysts [1]

Analysts are generally divided into 'buy-side' and 'sell-side'. A buy-side analyst, such as a fund manager, works for a company which buys and holds stocks itself, on the analyst's recommendation. A sell-side analyst's work is not used by its employer to invest directly, rather it is sold either for money or for other benefits by the employer to buy-side organisations. Sell-side research is often used as 'soft money' rather than sold directly, for example provided to preferred clients in return for business. 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. It is sometimes used to promote the companies being researched when the sell-side has some other interest in them, as a form of marketing, which can lead to conflicts of interest. The buy-side is sometimes considered more prestigious, professional, and scholarly, while the sell-side may be higher-paid and more like a sales and marketing role. It is common to begin careers on the sell-side at large banks then move to the buy-side at a fund.

Traditionally, analysts use fundamental analysis principles but technical analysis and tactical evaluation of the market environment are also routine. 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.

Analyst performance is ranked by a range of services such as StarMine owned by Thomson Reuters or Institutional Investor magazine. Research by Numis found that small companies with the most analyst coverage outperformed peers by 2.5 per cent — while those with low coverage underperformed by 0.7 per cent.[2]

Other areasEdit

Financial analysts in the 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 (“roadshows”) 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 here also.

Corporate finance analysts assist in long term capital budgeting and "project" valuation, and short term working capital management, including tasks such as profitability analysis. They are also typically involved with budgeting and planning (and corporate strategy), their models forming the basis for financial forecasting, scenario analysis and optimization. The latter, will often extend to involvement with dividend policy, and capital structure optimization.

There are several analyst roles related to credit risk, macro or micro. 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. Financial analysts employed in commercial lending[disambiguation needed] perform "balance sheet analysis", examining the audited financial statements and corollary data in order to assess lending risks. In retail banking, credit analysts build models to determine an applicant's creditworthyness, assign an initial credit score, and monitor this and the loan on an ongoing basis. In the latter two roles, impairment- and provision-modelling are often a prominent deliverable.

Some financial analysts, specialize as "accounting analysts"; they will 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 then typically “standardize“ the different companies' data, facilitating peer group analysis: the main objective here 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 gathered from financial statements, and possibly other sources.


In general, a Bachelor's degree in Accounting/Finance/Economics is a minimum requirement for an entry or junior role (as well as proficiency in Excel - see Financial modeling#Accounting). Often, more senior analysts are expected to then earn an MBA, having gained 2–3 years experience in the junior role. Increasingly, it is preferred that, even to enter, analysts hold a master's degree in finance. For credit related roles, an actuarial qualification, or the FRM / PRM is often required. In corporate roles, an accounting qualification - the CPA or CA - is typically a prerequisite.

In securities and IB roles, it is lately preferred that, as above, even to enter, analysts earn a master's and / or the CFA designation, with the MBA still common at senior levels. There are also many regulatory requirements. 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 86/87) in order to publish research for the purpose of selling or promoting publicly traded securities.

For sector-specialists - with approx. 5 years industry experience - less weight is placed on finance qualifications, as a relevant advanced degree or qualification in the field is often critical. (They will later be encouraged to earn the CFA / MBA.) For example, valuing financial service firms and valuing mining projects particularly, requires specialized knowledge re valuation-, regulatory-, and accounting standards; and qualifications in actuarial science, and mining engineering / geologist will be required. Other sectors may similarly require advanced technical knowledge; e.g. in pharmacy / life sciences for "bio-tech", and electronic engineering for areas in "high tech". Most large teams will also include a CPA or CA in a dedicated technical role. (In the Commonwealth, the CA qualification often remains sufficient to access (junior) analyst roles.)


The job title is a broad one. As of 2012, the median pay in the United States was $76,950 per year according to the Bureau of Labor Statistics.[3] SumZero found that professionals in the hedge fund industry average $409,826 per year including bonus and deferred pay.[4]

Controversies about financingEdit

Analyst recommendations on stocks owned by firms employing them may be seen as potentially biased.

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 part of the marketing department of an investment bank, 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. In Europe, the Markets in Financial Instruments Directive 2004 and subsequent related legislation has in part been an attempt to clarify the exact remit of equity analysts.

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 for financial research separately and directly to fully independent research firms.

See alsoEdit


  1. ^ Zuckerman, Ezra W. (18 May 1999). "The Categorical Imperative: Securities Analysts and the Illegitimacy Discount". American Journal of Sociology. 104 (5): 1398–1438. doi:10.1086/210178. JSTOR 10.1086/210178.
  2. ^ "Subscribe to read". Financial Times.
  3. ^ Financial Analysts. BLS.
  4. ^ This Is How Much The Average Person Can Make Working For A Hedge Fund. Business Insider.


  • Leon Wansleben (2012) 'Financial Analysts' In: K. Knorr Cetina & A. Preda (eds.), Handbook of the Sociology of Finance, Oxford: Oxford UP, pp. 250–271
  • Sol Stanley ‘ Financial Analyst.

Further readingEdit