Financial Analysts – financial analysts are responsible for devising the investment strategies for the client (client would refer to the individual, corporate, or public entities as the situation might be) post-analysis of the various behavioural and financial characteristics of the same.
A financial analyst is responsible for the macro- and micro-economic analysis of the country, industry, company or the entity in question. The major output of the analysis is with regards to the investment strategies or the decisions of the actions to be taken to safeguard the interests of the client.
The domain of the financial analysts would include all the financial instruments available in various markets, prominent being stocks (equities), bonds, and commodities.
As the individual financial instrument markets are large in themselves and as globalisation has increased, financial analysts are sometimes categorised based upon the instrument they specialise in. They are grouped under:
· Budget analysts – help the client allocate the available financial resources for achieving the goals as defined by client and suggests improvement over the existing procedures
· Credit analysts – helps the client in determining the credit worthiness of the borrower, (in case the client is a lender) and also the feasibility for the client to meet its debt obligations (in case the client is a borrower)
· Investment analysts – (used inter-changeably with financial analyst) helps the client determine the true value of the present investment, devise strategic suggestions for attaining the client’s financial goals, and also to determine the prospective investment opportunities.
· Merger and acquisition analysts – helps the client determine whether the merger and acquisition would be profitable and also gives the financial advice on the various figures like purchase price etc
· Money market analysts – analyses the financial market place information using economic data and helps the client determine the future investment opportunities
· Personal finance advisors – help the client design a portfolio or investment strategy based on the personal characteristics of the individual like risk tolerance, current financial strength and future income/expenditure prospects
· Ratings analysts – similar to credit analysts; they help determine the rating of the company/organisation which indicates the ability of the same to meet the debt obligations and gives rates to the risk of the entity in defaulting on its debt
· Risk analysts – evaluates and reduces the potential financial well-being of the company/business entity
· Tax analysts – they ensure domestic and international transaction tax compliance as applicable and maintains an updated record on the same to advice the client on potential investments.
· Treasury analysts – generally found in large companies, they help maintain the banking relations, evaluates and recognises the potential short-term investment opportunities for earnings, and maintain the cash balances amongst other treasury roles
Utilising this basis of categorization, a financial analyst can take up any role as suited though the underlying work would remain same – analysis of the investment(s).
Buy-side and Sell-side
Financial analysts are also categorised based upon the kind of institution they work for. If the client is buying a different business entity in part or whole, or investing in any kind of financial instrument, the financial analyst is called ‘buy-side’ analyst and if the client is selling any of the above, the analyst is called ‘sell-side’ analyst. A third type, called, ‘investment-bank analysts’ has been coined for the analysts which work for an investment firm, which generally limits to the analysis of the feasibility of a transaction and its monetary outcome. These analysts generally focus on IPOs (Initial Public Offers), FPOs (Follow-on Public Offers) and Mergers and Acquisitions (M&A).
Buy-side analysts would generally be aiding the large investors like mutual funds, pension funds, insurance companies, fund managers, or high-net worth individuals. Sell-side analysts would be working in tandem with large banks, or other firms which have a focus of selling securities, bonds etc.
They are largely employed by large banks, insurance companies, investment banks, mutual fund companies, pension fund management firms, securities firm, and any entity which make investment decisions in financial instruments. They are also hired by business media houses, where they provide an unbiased opinion about the various financial instruments and their future outlook.
