In the contemporary landscape, data science is at the core of every progressive organization that relies on technology to carry out its operation. This is also true for players in the banking and finance industry. The banking and finance industry has undergone a massive transformation in the last two decades.
With the advent of the Fintech companies, the traditional banking systems have been forced to rethink how they serve their customers. Traditional banking has been replaced by digital banking and transactions using smart devices have gained the front seat. Data science is at the centre of this revolutionary technology. It has made it easier to analyze the financial stand of the organization and the market volatility.
Data has helped them customize their services as per the needs of an individual customer. It has helped to improve the services of all players in the finance industry by giving them insightful information as to what the customers want. The finance and technology amalgamation has leveraged the power of data and internet to make everything smarter. It has made it easier to predict future trends using historical data.
Now, how do they use data and who helps them obtain valuable insights from seemingly irrelevant data? A large part of this process is carried out by financial analysts who have a dynamic role to play in the success of a financial organization.
Let’s dig deeper into what financial analysts do and how do they help the companies with their expertise.
Role of a Financial Analyst
The role of a financial analyst is very diverse and entails a range of activities that need to be carried out. The role of a person working in the capacity of a financial analyst is multi-faceted. It requires a range of technical skills and good quantitative acumen to succeed in the role.
The wide range of chores in the purview of a financial analyst includes accumulation and organization of data, analyzing historical results, making future projections, preparing reports, making a recommendation. Let’s peep into the details.
Gathering and Organizing data
This is the most rudimentary task that a financial analyst needs to perform. Any analysis requires a collection of relevant data and organizing it as per their needs. These data generally includes accounting data, stock price information, macroeconomic data and other quantitative data that helps to make a detailed analysis.
These data sets are collected from the internal database of the company or third party research providers like Bloomberg. Once the relevant data is obtained it is organized and arranged using a spreadsheet or some other database. The organization process also includes categorizing data and applying formulas and functions.
Analyzing financial information
Once the data is gathered and organized into a database, the actual analysis process starts with the evaluation of past data records and results. The analysis process includes inspection of various financial ratios and metrics like gross profit, net margin, return on equity, earning per share, liquidity ratio, growth rate, inventory turnover ratio, etc.
Make future projections
Once the historical data and past results have been analyzed, the analyst is required to make future projections and predict general trends related to the company’s financial performance. Some of the mainstream projection methods that are applied to make predictions include regression analysis and year over year growth rates method. Other methods include bottom-up approach, bottom-down approach, etc.
The process of predicting future trends and making projections is followed by building recommendations and providing suggestions on how to improve the operations of an organization. These suggestions might include ways to cut cost, identifying new investment avenues, methods to achieve operational efficiency, ways to improve customer satisfaction, etc.