Key Skills For Financial Analysts
Financial analysts are important jobs in the world of finance, responsible for evaluating economic trends, assessing the financial health of companies, and providing valuable insights to guide investment decisions. To succeed in this competitive field, aspiring financial analysts must possess a strong foundation of technical skills and soft skills.
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What Skills Are Required To Be A Financial Analyst?
The skills required to excel as a financial analyst include understanding the basics of finance, having experience using financial models, being fluent in data analysis strategies and terms, being detail-oriented, being good at building client relationships, and knowing how to develop actionable presentations.
Financial Knowledge
A financial analyst’s skills should include a strong grasp of the financial knowledge used in accounting, financial statement analysis, and the various techniques used to determine the value of an asset or company.
When finance analysts evaluate a company’s financial statements, they are usually trying to determine the financial health of that company. Some of the most common financial statement analysis techniques include ratio analysis, trend analysis, and common-size analysis.
Determining the value of an asset or company is also an integral part of some financial analyst positions. Being able to effectively use valuation methods like the discounted cash flow method or the market multiple method can help financial analysts demonstrate their value to their employers and clients.
For example, in the investment management industry, a financial analyst might use their understanding of financial statements to identify undervalued companies with strong growth potential, recommending them as attractive investment opportunities to portfolio managers.
Financial Modeling
Financial models are mathematical representations of a company's financial performance. They are used to forecast outcomes and make business decisions.
In investment management, financial modeling plays a crucial role in portfolio construction and risk management. Successful financial modeling requires a strong understanding of financial principles, proficiency in spreadsheet software (such as Excel), and the ability to interpret and analyze complex data. Analysts must also be able to adapt models to changing market conditions and communicate their findings effectively to stakeholders.
Data Analysis
Common data analysis skills for financial analysts include proficiency in MATLAB, the programming language R, Python, and SAS. Financial analysts use these tools to collect, clean, and organize large datasets to identify trends and patterns, and ultimately develop meaningful insights to support their financial recommendations.
Specific data analysis skills used by financial analysts include:
- Ratio analysis
- Trend analysis
- Regression analysis
- Sensitivity analysis
- Scenario analysis
Risk Management & Compliance
Financial analysts should also be familiar with industry-specific regulations and compliance requirements. This knowledge helps them ensure that their analyses and recommendations adhere to legal and ethical standards, protecting both their clients and their employers from potential risks.
Analytical Thinking
Analytical thinking is probably one of the most fundamental skills financial analysts should have. Analytical thinking helps them make informed decisions, which clients and employers demand. It’s the foundation for solving problems and making recommendations, which ultimately determine the success of a financial analyst.
Presentation Skills
Presentation skills are important for financial analysts because they need to be able to communicate their ideas and recommendations clearly. These skills can be difficult to attain for financial analysts because they are typically taught in arts and design courses which financial analysts may only take a few of during their formal education.
For example, knowing which color combinations are most ADA-compliant, which fonts and sizes are easiest to read, and which types of visualizations to use to describe a particular trend or topic are all important skills that financial analysts should learn to develop throughout their careers.
Degrees for Financial Analysts
Most financial analysts earn a bachelor's degree in Finance, Accounting, Economics, Mathematics, or Statistics. However, it’s also common for financial analysts to continue their education while employed, especially if they desire to progress in their careers.
Master’s in Financial Analysis
Financial analysts who want to continue to develop their skills and master advanced competencies in financial analysis will benefit from pursuing a Master’s of Science in Financial Analysis.
Not only will they gain important knowledge and skills and be well-positioned for the field of financial analysis but they will also be prepared to become a CFA® Charterholder or a CAIA® Charterholder. Both are prestigious professional designations for financial analysts.
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Financial Analyst Skills FAQs
Here are some frequently asked questions about starting a career in finance, including how the skills you've learned as a financial analyst can be applied to entry-level roles.
What are the 5 Components of Financial Analysis?
The five components of financial analysis used by financial analysts involve assessing a company's (or clients) financial health through liquidity, solvency, profitability, efficiency, and market analysis. These analysis techniques include looking at various financial factors such as economic growth, interest rates, inflation, debt-to-equity ratios, and gross profit margins.
How Does a Financial Analyst Help a Business?
A financial analyst helps a business by making good recommendations and financial decisions for their clients and their company. Financial analysts can use their analysis skills to determine which investments should be pursued and which should not.
What Makes a Good Financial Analyst?
What makes a good financial analyst is a combination of technical skills (financial knowledge, modeling, data analysis) and soft skills (analytical thinking, communication, presentation). They are detail-oriented, able to understand and adhere to industry regulations, and capable of making sound financial recommendations.
Learn About The Benefits of a Master’s in Financial Analysis
The online Master of Science in Financial Analysis (MSFA) program at the College for Financial Planning® — a Kaplan Company is all about taking your financial analysis skills to the next level. We're here to help you become a top-notch financial professional by focusing on important things like critical thinking, ethics, and always learning something new.
The graduate program is part of the CFA Institute University Affiliation Program. It is recognized by CFA Institute as embedding at least 70% of the CFA® Program Candidate Body of Knowledge™ (CBOK) from the CFA Program into our curricula.
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