How to become a financial analyst

The seven qualities of a good financial analyst are listed below. Read through their descriptions and ponder whether you own them. Then fill out Form 1 to find out more about yourself.

Understand the concept of materiality

Good financial analysts can start with incomplete information and a sense - a trained intuition - of when information is relevant and when it is not. Relevant feelings to draw conclusions. In some cases the information is measurable, such as the size of a transaction or the level of budget deviation as a percentage. In other cases the information is more intangible, such as the level of detail currently known by a finance manager vs. the CFO. One of my financial analysts explains it as the concept of cost vs. benefit: the concept of knowing when you've reached the point where spending more time on an analysis won't provide enough benefit to continue.

Accountants and computer programmers sometimes have a hard time transitioning into financial analysts because of their focus on numbers and sequences. A standard question I ask in hiring interviews is "What does importance mean to you?" Candidates who tell me it means doing everything they can to be pretentious usually don't get a second interview.

Adept at using spreadsheets and databases to analyze information

Excellent financial analysts know how to use the tools provided by spreadsheets and databases to condense disparate data, solve problems, and present information to management Layer presentation information. Full range of experience using these tools is less important than an awareness of knowing them and when to use them, although a solid understanding of pivot table and query design can be helpful. Also, it's important to know the needs and personal style of the individual(s) you will be reporting to. Some managers prefer information to be presented in a visual form such as a graph, while others like their subordinates to present all information for them in detailed financial tables. Ultimately, it’s all about turning data into conclusions.

My department at WellPoint has developed a "Technical Skills Assessment" that every analyst uses to assess their level of proficiency in Microsoft Excel, Microsoft Access, and other tools. These assessments help me and my staff work together to identify their development opportunities and also give us a reference tool for deploying experts based on the characteristics of each tool.

Understand and apply management accounting concepts

We all learn many valuable concepts in undergraduate and MBA programs, but most financial analysts do not fully utilize them in their work. Good financial analysts remember these concepts and are able to apply them. For example, analysts responsible for departmental budgets are skilled in using variance analysis and activity-based costing (ABC) techniques. Analysts in capital-intensive industries are skilled at applying return on investment and break-even analysis. And those analysts who develop growth strategies use contribution margin and incremental cost analysis.

Statistical methods are also often underutilized, primarily because we tend to forget about them after completing our degrees. Good financial analysts find ways to use statistics to locate patterns in data.

Obviously, a great way to develop these skills is to become a Certified Management Accountant (CMA) and/or a Certified Financial Manager (CFM). Exam preparation updates your knowledge and gives you practice in a field that may have been neglected, and also earns you practical credentials that demonstrate your excellence.

Successfully navigate a company's financial systems and informal networks to obtain data and information

Good financial analysts know their company's financial systems - general ledger, sales, inventory, etc. - and the limitations of the data they contain, from which they can be stripped for further analysis in spreadsheets and databases.

Also, knowing who to ask for help and answers is just as important as knowing your financial system. Informal networks do not follow a company's chain of command, so it may take a few phone calls to identify people who can help at first, but these networks are very effective once established.

Because they require very different talents, it is difficult for one person to possess both technical skills and interpersonal skills, but each skill can be developed through awareness, focus, and practice.

Have a solid understanding of the company's products, markets, and processes

A good financial analyst can add value by understanding how their analysis relates to the business.

Knowing the company's primary revenue sources (products, customers), key computer systems, work processes, and geographic distribution will provide insight into the components of revenue and expenses that should be analyzed. For example, an analyst who knows that 30% of a company's revenue comes from a product will monitor sales of that product very closely and be in constant contact with the product manager when making financial forecasts.

Proactively have a continuous improvement mentality in the field

Excellent financial analysts are always looking for ways to make their work more efficient and pursue training that will enhance their abilities, such as learning Use analytical tools more efficiently. Good analysts are not satisfied with current improvements and always want to enhance themselves and the business, so they seek advice on how to improve existing processes. For example, in my department, a task that once took eight hours a month to do manually is now automated and takes only two hours.

Include insights and questions when distributing a report or analysis

Many analysts simply think about completing the report, crossing it off their work list, and moving on to the next task. Good financial analysts resist this impatience. They will take the time to not only review the report for accuracy but also to determine what it actually says about the business. Then when they submit their analysis, they pass on any observations and questions to management. This process works best if they leave the analysis until the report is complete and then revisit it later with a new perspective. Good analysts view their work as analysis rather than reporting. If you can only do one thing that is different, do it with this quality because it will have the greatest impact.