Financial analyst: Wikis


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From Wikipedia, the free encyclopedia

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.



An analyst studies companies and other entities to arrive at the estimate of their financial value. It is normally done by analyzing financial reports, aided by follow-up interviews with company representatives and industry experts. Often, specific "coverage" is assigned, specifying a number of companies or industries on which an analyst is supposed to provide regular assessment and updates. 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 legislatory changes brought upon by corporate scandals in the early '00's. 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. 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, 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.


Although there are no formal qualification criteria, analysts usually have graduate level training in finance such as MSF or MBA degrees, or are qualified accountants (ie. CMA,CCA, 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 FINRA, the Financial Industry Regulatory Authority. 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.

Skills required

Basic analytical skills, and strong numerical skills. Importantly, communication skills are necessary to explain complex concepts to management or clients.

Controversies about financing

The fact analysts make recommendations on stocks owned by firms employing them seems unfair.

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;" the independent researchers are not part of an investment firm and don't have the same incentive to issue overly favorable views on companies.

But that might not be sufficient to avoid all conflicts of interest. The debate is still 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.

Dan Reingold, a former securities analyst, gives examples of these and related controversies in his autobiographical book "Confessions of a Wall Street Analyst."

See also

Further reading




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