How to Become a Financial Analyst (16 Steps)

The position of a financial analyst is one of the most sought-after occupations in the financial industry. The main work responsibility of a financial analyst is to help organizations make sound investment decisions or recommendations by gathering, analyzing, and assessing financial analysis data to predict the outcomes. 

Financial analysts can have both junior and senior positions, and it’s a specialty that frequently opens doors to different job prospects. However, financial service is a competitive industry, and analysts must possess the technical skills and market knowledge necessary to be successful.

The role of a financial analyst is important because they provide the critical analysis that can impact an organization’s finances. Financial analysts are expected to have a deep understanding of both accounting and finance, as well as an understanding of how different investments work. They use this knowledge to build financial models that help organizations make decisions about where to invest their money.

What Does a Financial Analyst Do?

A financial analyst’s primary responsibility is to conduct various types of financial analysis to support decision-making within an organization. They usually analyze data on stocks, bonds, real estate, and so on.

Financial analysts often work in:

• Banks
• Financial planning organizations
• Investment firms
• Insurance companies
• Government organizations

How to Become a Financial Analyst

Here are some typical steps to become a financial analyst:

Step 1: Earn a Bachelor’s Degree

The first step to becoming a financial analyst is to earn a bachelor’s degree. A bachelor’s degree in finance related field is much important to achieve your goal. 

For example, in your pursuing of a Bachelor of Finance, you’ll learn the courses of investment and portfolio management, financial statement analysis, and business calculus, which will be helpful in your future career.

Step 2: Complete a Financial Analyst Internship

You can gain a realistic understanding of the career and the type of work you might anticipate on a daily basis in the financial field by completing an internship in a financial company. 

Additionally, internships offer you the chance to network with financial analysts and perhaps even find a mentor. The relationships you build with your mentor while interning will be beneficial to your future career.

Step 3: Learn Strategic Planning Foundations

Strategic planning is one of the key skills that every financial analyst needs to have. A financial analyst who can masterfully create a strategic plan will be able to provide their company with a competitive edge.

For example, The first step in learning how to create a strategic plan is understanding the basics of SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It is a framework that financial analysts use to assess a company’s current position and how it can improve.

Once you understand the basics of SWOT analysis, you can begin to learn more about other aspects of strategic planning, such as creating financial models, performing sensitivity analysis, and simulating different investment scenarios.

Learn how to run a successful strategic planning process that produces a compelling, clear strategy plan for your business.

Step 4: Learn the Basics of Financial Accounting

In order to produce information that may be used to help with business choices, financial accounting entails the process of logging, categorizing, and summarizing financial transactions. Financial accounting serves as the basis for all financial analysis, so financial analysts must be well-versed in it.

There are three main types of financial statements: the balance sheet, the income statement, and the cash flow statement. Financial analysts use these statements to assess a company’s financial health and to make predictions about its future performance.

Step 5: Learn How to Build Financial Models

Forecasting is an important part of any business, and financial analysts are experts at it. A financial model is a tool that financial analysts use to predict how a company will perform in the future. Financial models are used to forecast things like a company’s revenue, balance sheets, and cash flow.

Building a financial model is a complex process, but it can be broken down into a few simple steps:

• Choose the right financial relationships
• Choose the right inputs
• Choose the right outputs
• Choose the right time periods
• Run your model

Financial models are used in a variety of settings, such as when making investment decisions, estimating the value of a company, or forecasting future financial performance. By creating a financial model, you can make predictions about your company’s future performance and make decisions accordingly.

Step 6: Learn How To Evaluate And Visualize Cash Flows Using Microsoft Excel

Excel is a powerful tool that financial analysts can use to evaluate and visualize cash flows. Excel can be used to create beautiful charts and graphs that make it easy to see how money is flowing in and out of a company.

Additionally, Excel can be used to perform complex calculations, such as net present value and internal rate of return. Financial analysts use these calculations to make decisions about investments and to assess the financial health of a company.

Step 7: Learn How To Create A Powerful Excel Spreadsheet So You Can Track Any Type Of Data Easily

Data such as sales activity, inventory levels, and household expenditures can all be tracked using Excel, which can help you make better financial decisions.

Creating a powerful Excel spreadsheet is not as difficult as it may seem. By following a few simple steps, you can create a spreadsheet that is both informative and visually appealing.

Step 7: Understand Financial Ratios 

Know the meaning of financial measures like ROA and ROI and how to utilize them to make better business decisions by determining financial patterns or evaluating the financial health of a business.

Financial ratios are a way of measuring a company’s financial health. They are used to assess things like a company’s profitability, solvency, and efficiency.

There are dozens of different financial ratios, but some of the most important ones for financial analysts to know are return on assets (ROA), return on equity (ROE), and debt-to-equity ratio (D/E).

Step 8: Learn The Ins And Outs Of Financial Statement Analysis

Financial statement analysis is the process of reviewing a company’s financial statements in order to make better business decisions. You need to know the relationships among three financial statements and each item in each statement.

There are three main types of financial statements: the balance sheet, the income statement, and the cash flow statement. Financial analysts use these statements to assess a company’s financial health and to make predictions about its future performance.

In order to perform a thorough analysis of a company’s financial statements, you need to understand the various components of each statement and how they relate to one another. Additionally, you need to be able to identify red flags that may indicate financial trouble.

Step 9: Learn How To Use Economics To Make Better Business Decisions

Macro economy is the study of large-scale economic factors, such as interest rates, inflation, and unemployment. Microeconomics, on the other hand, is the study of individual consumers and businesses.

Financial analysts need to understand both macro and microeconomics in order to make sound business decisions. For example, if interest rates are low, it may be a good time to borrow money for expansion. However, if inflation is high, it may be a good time to invest in assets that will hold their value.

Step 10: Use Big Data To Forecast Economic Trends

In order to make accurate predictions about the future, financial analysts need to be able to analyze large amounts of data. This data can come from a variety of sources, including economic indicators, company financial statements, and demographic data.

Big data is becoming increasingly important in the field of financial analysis. By utilizing big data, analysts can more accurately predict economic trends and make better business decisions.

Step 11: Attain Licensing and Certifications

A Certified Financial Analyst (CFA) designation is the most globally recognized credential for financial analysts. The CFA program focuses on investment management and portfolio construction.

The Chartered Financial Analyst (CFA) Institute administers the exam. To qualify to take the CFA exam, candidates must have a bachelor’s degree, four years of qualified work experience, and pass an ethics exam. The CFA exam consists of three levels, each with its own exam.

Level 1: focuses on ethical and professional standards, quantitative methods, economics, financial reporting and analysis, corporate finance, and portfolio management.

Level 2: emphasizes on asset valuation, fixed income instruments, derivatives, and alternative investments.

Level 3: tests on portfolio management and wealth planning.

Alternatively, the Financial Industry Regulatory Authority (FINRA) offers the Series 7 and 63 exams for financial industry employees who want to give investment advice or sell securities products. The Series 7 exam covers topics such as types of securities, government regulations, and investment strategies. The Series 63 exam covers state securities regulations.

Step 12: Consider Earning a Master’s Degree

The minimum educational need to work as a financial analyst is a bachelor’s degree, but certain employers may prefer or demand that analysts have an MBA with a specialty in finance or a master’s degree in finance.

Earning a master’s degree can give financial analysts the opportunity to develop more advanced technical skills and knowledge, which can make them more attractive to employers. Additionally, a master’s degree may be necessary to qualify for senior-level positions.

Step 13: Develop Your Skills Independently

Financial analysts can develop their skills independently by reading books and articles, taking classes, and attending conferences. There are many resources available to financial analysts who want to improve their skills, including online courses, webinars, and podcasts.

Step 14: Join a Professional Organization

Joining a professional organization, such as the CFA Institute or Financial Analysts Federation (FAF), can be beneficial for financial analysts. These organizations offer networking opportunities, access to research and publications, and professional development resources.

Step 15: Gain Work Experience

Most employers prefer or require financial analysts to have at least two to three years of experience working in the finance industry before they will consider them for a position. Financial analysts can gain work experience in various roles, such as investment banking, commercial banking, and financial planning.

In these positions, financial analysts might perform duties such as conducting financial analysis, preparing reports, and making recommendations to clients. Financial analysts might also work with portfolio managers to develop investment strategies and select securities for inclusion in portfolios.

Work experience can help financial analysts hone their skills and knowledge and develop the ability to think critically about financial data. Additionally, employers often prefer candidates who have relevant work experience. 

Step 16: Stay Up-To-Date on Financial News and Trends

Financial analysts need to stay up-to-date on financial news and trends in order to make sound investment recommendations. They can do this by reading industry publications, such as The Wall Street Journal, Bloomberg Businessweek, and Forbes. Financial analysts can also stay informed by following industry news sources, such as CNBC and Bloomberg, on social media.