Modern businesses have greater access to data than ever before. This greater access to data provides them with invaluable opportunities to develop deeper forecasts and financial analyses. As Scott Tominaga says, even smaller businesses can effectively extract data-driven insights in order to make better decisions. However, not all entrepreneurs have the time or expertise required for continuous financial analysis. This is where a financial analyst comes in.

Scott Tominaga provides insight into the role and duties of financial analysts

Financial analysts are usually responsible for gathering relevant financial information about a company and the wider business landscape, and subsequently synthesizing that data into digestible trends to make informed decisions. They create financial models and forecasts and aim to provide actionable recommendations that can help in solving business problems or seize opportunities. Important duties of financial analysts include:

• Gathering data and information: The work of a financial analyst typically begins with gathering vital data and information. The information they collect may include statistics and macroeconomic data, historical financial reports, accounting data from the general ledger, statistics, stock price information and other types of quantitative data.

• Organize information: After the necessary data is gathered, it is likely to be entered into Excel or some other type of database. The next task would be to organize and clean the data, and ultimately get it into a format that is easily understandable. To do so, financial analysts may have to sort the numbers by data or category, add functions and formulas to make sure it is dynamic, and utilize consistent formatting styles so that it is easy to read and understand.

• Analyse financial results: When the data is properly organized in Excel, the financial analysts have to start analysing the past information and historical results. Doing so may include taking a look at important metrics and ratios like return on assets (ROA), debt/equity ratio, earnings per share (EPS), year-over-year (YoY) growth rates, return on equity (ROE), and more. Financial analysts are likely to look for trends and benchmark the performance against other companies in the same industry.

• Make forecasts and projections: Subsequent to the analysis of historical information, it shall be vital to make forecasts about how the company is likely to perform in the future.  It takes both an art and a science to predict how a company will perform in the future. A lot of assumptions have to be made in the process as well. Some of the common forecasting methods used by financial analysts are year-over-year growth rates, bottom-up and top-down approaches, as well as regression analysis.

Scott Tominaga points out that competent financial analysts are not just good with numbers, but can also effectively generate recommendations and insights on how to improve the operations of a business organization. Identifying ways to cut costs, opportunities to grow revenue and improve operational efficiencies, ways to increase market share, and steps for increasing customer satisfaction are examples of some of the most helpful recommendations and insights. Such recommendations tend to be presented to the CEO, the CFO, other executives, and/or the board of directors of a company.