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.
Related or Semi-related Video
Finance: What is Fundamental Analysis?6 Views
Finance a la shmoop what's the difference between a chartist and a
fundamental analyst? okay here's Bob the trader no relation to Bob the Builder [Bob the builder appears]
that is literally his name Bob the trader his parents were bearish on
social security ever really being there for him so you know Bob the trader was
their social security sort of how things work in China today they bet the ranch [Ranch appears]
on Bob and Bob makes bank by trading stocks for silverman slacks Partners on
Wall Street he makes ten million bucks a year by
looking at charts and trading patterns like ascending triangles and double [Trading patterns appear on sheets of paper]
bottoms we cannot lie and triple top like that obB is a chartist and really
kind of an astrologist too and well just kind of weird but he's rich so people [Bob carrying stacks of money]
call him eccentric well Bob the trader is basically the opposite of a
fundamental analyst how so well Bob the trader knows and cares almost nothing
about the companies behind the stocks he trades, he doesn't know what they do for
a living or what their earnings are or what they manufacture or what their
profit margins are or what their gross rates are or who runs them or even how
you spell their corporate name.... well Bob just knows that this week the
stock appears to be starting a major break out and he wants to bet big by [Break out appears on grading patterns]
being long the stock either by owning it or by owning call options with a strike
price right up around here okay so that's Bob the trader all right now meet
Izzy the investor and yep you guessed it that's her real name would have been [Isabel as a baby with her parents]
Isabel but well same deal on the parents and the social security bearishness
thing..Izzy the investor is her parents social security she too makes ten
million dollars a year on Wall Street only she makes like three trades a year
Bob the trader makes that many in an hour
Izzy the investor is a fundamental analyst or a fundamental investor so she
makes big bets on a concentrated handful of stocks which then represent the
investment portfolio she manages and is evaluated again it's like relative to
some index like the S&P500 five hundred so what does a fundamental
analyst care about other than having fund she looks at everything that
comprises real and tangible or meaningful value in a company like all [Man discussing fundamental analysts]
the stuff we described earlier mainly well, the cash it produces or will
produce in the future like if she's paying a hundred bucks share for a stock
what financial returns or value do you get for that stock? ten bucks in real
cash earnings a six percent dividend how our profit margins are they trending up
or down? what about revenue growth our revenues
in fact growing and what about management do they get the biz or are
they just in the rolls for a you know investment bank or golf well how does
the company manage its cash does it buy back stock how well does their product
mesh with the future like are they making operating systems for robots or
paper and pulp so yeah that's what a fundamental analyst does they pick [Stock transfers to Izzy]
stocks using the fundamentals that make up the value of the stock and they really
don't care a whole lot about the charts and yes the key thing is that they get
down to the fundamentals of what makes a company tick especially if that company [Izzy sitting in office and clock ticks]
makes clocks for a living
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