Project One: Financial Analyst Job Aid

FIN 320 Project One: Financial Analyst Job Aid Financial Responsibilities Financial analysts are responsible for conducting research and providing recommendations for investment decisions. Financial analysts will also use this same research to create reports and representations to present to management and stakeholders to display the outcomes of their recommended business decisions. Financial analysts evaluate financial statements such as balance sheets, income statements, and other statements to analyze a business's financial health and future growth. Financial analysts must use financial software and tools to resolve complex financial equations. Financial analysts ensure all business practices comply with legal and regulatory requirements. Financial analysts are responsible for managing budgeting costs and assessing the business's assets to help determine future costs. Financial Management Decisions These types of responsibilities inform management decisions by supplying financial forecasts and insights based on data collected from financial research. By conducting detailed analyses of market trends and financial statements, financial analysts assist management teams in comprehending and understanding the company's financial health and status. With this information, management can make well-informed choices regarding possible investments, future growths, or operational modifications. Without this information, management would lack a clear understanding of the company's financial position which would make making informed decisions difficult. This could result in inadequate financial management practices including insufficient investments or a lack of preparation regarding potential financial risks. For instance, when a company is weighing in on a significant investment the evaluation of possible risks by a financial analyst can be vital for the decision to move forward. Without this type of financial analysis, the company could potentially make a decision based on inadequate information causing considerable financial loss. Accounting Principles To help make informed decisions financial analysts utilize a variety of different types of accounting information. An important type of information used is the balance sheet which displays a company’s assets and liabilities. The income statement is significant as well because it shows how much money the company has earned and spent over a specific period of time. Analysts also examine cash flow statements to track the flow of cash in and out of the company to help determine if the company can afford to stay in business. A company that lacks this type of accounting information could potentially face serious financial losses. Without accounting information the company will not be aware of its financial gains or losses, thus resulting in them operating blindly. This could result in overspending on supplies or even hiring excessive personnel that they aren't financially able to pay or afford. If the company lacks a solid grasp of its financial situation employees may also experience job insecurity resulting in them quitting and the company back at square one spending more money they do not have to recruit more personnel. Financial Statements Financial analysts primarily need financial statements to help companies make crucial financial decisions. They must utilize the company balance sheets, cash flow statements, income statements, and any other financial statement to conduct a thorough investigation and provide relevant information regarding the overall financial health of the company. Analysts also need to stay updated with both market and economic trends. For example, an analyst will look at a company's income statement to evaluate its profitability. If the analyst sees that the company revenues consistently exceed its expenses they may recommend a profitable worthwhile investment. If a company's cash flow statement shows that it produces more cash than it spends, the analyst may recommend new projects or assets. Furthermore, if the debt level shown in the company's balance sheet is high, the analyst would recommend management concentrate on eliminating its liabilities. Financial Terminology Financial statement Definition: A financial record of the financial activities of a company. Typically consists of the balance sheet, income statement, cash flow statement, etc. How this is used: It is used to give details on the overall financial health of a business. Liquidity Definition: The speed with which an asset can be converted into cash without loss of value. How this is used: It is used to evaluate the company’s ability to satisfy short-term obligations. Working capital Definition: The measurement of both a company’s operational efficiency and its short-term financial health. How this is used: It is used to ensure the company’s continued functioning by helping to cover short-term payments or obligations. Diversification Definition: The reduction in risk that comes about by combining two or more risky assets into a portfolio where the individual assets are less than perfectly positively correlated. How this is used: It is used by distributing investments throughout the company in order to lower risk exposure. Time value of money Definition: The concept that money available at the present time is worth more than the same amount in the future. How this is used: It is used to help management make decisions about future cash flows. References