Financial Analysis

What does a financial analyst do? Analyze finance. Duh.

Ok, so after all that analyzing of financial data, what does the analyst then do?

Well, she makes recommendations to, uh...do stuff. Generally so that investors can make money. Or not lose money. And to be clear, financial analysts comes in a few different flavors.

Take an analyst who works for a stock brokerage, for example.They'd produce reports, which the brokerage then gives to clients, hoping that it will incentivize them to trade with the firm and give the firm its commission/trading business, which, of course, generates commission dough for the brokers.

In theory, the goal here is to make money for the client, but the more near-term goal is to get the client to pay attention to the firm. This is a subtle but very important difference from a financial analyst who works for an investment company, i.e. one who actually invests money for clients, and is evaluated based on the performance of those investments.

A financial analyst inside of an investment company, like Fidelity or Franklin or 20th Century or American Funds, cares only about how well the investment does. That financial analyst doesn’t have to juggle clients or worry about marketing to non-professional investors or generating commissions for the firm. All they have to worry about is beating the market or their index or whatever benchmarks are set out there for them.

In addition, there are two flavors of financial analysts on Wall Street, more or less:

Sell side...i.e. extensions of stock brokers. Sell side analysts are the "brains" hired by stockbrokers to market how smart that given firm is.

And buy side...i.e. money managers for mutual, hedge, venture, and private equity funds. Their job and evaluation revolves around how well or poorly the investment firm's portfolio managers...invest.

And then there are financial analysts who work for the government. These guys are usually housed in the hell-like division of the government called The Fed (hi, Fed, we love you ) which assesses whether or not the economy is heating up…cooling down...or see-sawing like a spring day in Chicago. See: Federal Funds Rate. See: Inflation.

Here, a financial analyst might be sampling the prices of a half-gallon carton of GMO milk at 500 grocery stores around the country. They then use that data to figure out if the country is feeling inflation...deflation...or just boredom.

Financial analysts exist inside of corporations as well.

Corporate analysts perform market evaluations to try to help companies sell more product for more profit, which in turn fuels the company's growth, and all that other fun stuff. See the Shmoop Wall Street Careers area for more details and/or love.