How to be an excellent financial analyst

Seven key skills and a new way of thinking Every company has employees who analyze its financial data and enhance its decision support process by providing them with management insights and analysis. Effective financial analysis is more a way of thinking than a series of steps or procedures. Good analysts will find cost-saving ideas, opportunities for income growth and strategies to improve productivity. First of all, let's talk about what it takes to be an excellent financial analyst. Then we will discuss how to become an excellent financial analyst. The seven qualities of an excellent financial analyst are listed as follows. 1. Understand the concept of importance. 2. Be good at using spreadsheets and databases to analyze information. 3. Understand the concept of management accounting and apply it to excellent financial analysts. For example, the analyst in charge of department budget is good at using deviation analysis and activity-based costing (ABC) skills. Analysts in capital-intensive industries are good at applying return on investment and break-even analysis. And those analysts who make growth strategies will use marginal contribution and incremental cost analysis. Statistical methods are usually not used, mainly because we often forget them after completing our degrees. Good financial analysts will find ways to use statistics to locate data types. 4. Successfully walk through the company's financial system and informal interpersonal network to obtain data and information. Excellent financial analysts know their company's financial system-general ledger, sales, inventory, etc. -and the limitations of the data they contain, from which they can extract data for further analysis in spreadsheets and databases. Besides, knowing who to turn to for help and answers is as important as understanding the financial system. Informal interpersonal networks do not follow the company's chain of command, so it may take several phone calls to determine who can help, but once established, these networks are very effective. 5. Have a deep understanding of the company's products, markets and processes. Good financial analysts can add value by understanding how their analysis is related to the business. Understanding the company's main revenue sources (products, customers), key computer systems, workflow and geographical distribution will help to deeply understand the components of revenue and expenditure that should be analyzed. For example, an analyst who knows that 30% of the company's revenue comes from a product will pay close attention to the sales of this product and keep in constant contact with the product manager when making financial forecasts. 6. Take the initiative to improve in every field, and have the mentality of continuous improvement. 7. When distributing a report or analysis (including opinions and questions), many analysts want to complete the report, cross it off the work list and move on to the next task. Good financial analysts will resist this impetuousness. They should not only take the time to check the accuracy of the report, but also determine what the report really wants to say to the enterprise. Then, when they submit the analysis, they will pass on any comments and questions to the management. This process is most effective if they leave the analysis until the report is completed and then re-examine it from a new angle. Good analysts believe that their job is to analyze rather than report. If you can only do one unique thing, do it according to this quality, because it will have the greatest influence. From excellent to excellent 1. Feel annoyed when analyzing unimportant things. Analyze the survey from top to bottom 3. Think like an entrepreneur. Excellent financial analysts pay attention to the key financial and performance indicators of their companies and consider ways to improve profitability and increase market share. Understanding the concept is more important than the process. 5. Understand how external factors affect the company. 6. Constantly seek customer feedback and interaction. 7. Be able to tell the story behind the data. 2. Financial analysis-the art of answering questions The most important point of financial analysis is to understand the problems to be solved and analyze the real purpose of the report users. To some extent, management can be defined as "the art of asking real questions". This definition also applies to financial analysis, which can be defined as "the art of effectively answering management questions". Unfortunately, many of us pay too much attention to giving a numerical or quantitative result quickly, without seriously thinking about whether it really and effectively answers the management question (sometimes the answer to the management question is not just a simple number, and it is necessary to make a qualitative analysis of the business background, financial performance or the advantages and disadvantages of the scheme). In order to prevent us from rashly conducting financial analysis and falling into the trap, the following is a list of self-test questions before the analysis begins: 1. Is the nature and scope of the problem to be analyzed clear? Do you really understand the importance and timely background of the problem? 2. What relevant assumptions, variables, relationships and trends are helpful to the analysis of the problem? What is their order of importance? 3. Is there a quick estimate or judgment to help decide: A. What are the key data and steps B. How long will it take to refine these key data 4. Relative to the importance of the question, how necessary is it to answer accurately? Is it worth further refining the accuracy of the answer? 5. Is the source data used for analysis credible? If not, to what extent does this uncertainty affect the analysis results? What kind of confirmation procedure is needed and how long will it take? 6. Is the data used for analysis related to cash flow or financial performance? In other words, does the decision based on analysis affect financial performance, or in what way? 7. Is the proposed analysis method completely applicable to the analysis of this problem? Will different analytical methods produce different results? 8. Is qualitative analysis important in specific circumstances? If qualitative analysis is considered important, which quantitative analysis step can be omitted? Third, how to play the role of financial analysis The purpose of financial analysis is to promote action, but the financial personnel themselves are not responsible for sales, operation and decision-making, that is, actions can only be made by others. In other words, financial analysis can only play a role if the managers in charge of actions are willing and really use the results of financial analysis to adjust their actions. Drucker pointed out: "The output of professionals must be combined with the output of others in order to produce results." In order to promote action, financial analysis reports must become "useful". Financial analysis can't just be generalized, seemingly comprehensive, but in fact it is worthless; Financial analysis should not be a game of rotating numbers and changing numerator and denominator; Financial analysis should not be behind closed doors, imagining conclusions. To improve the "usefulness" of analysis, financial personnel should achieve "one orientation and four understandings". "One orientation" means "customer-oriented". Here, the customer is the user of the analysis report. Leaders at different levels have different emphases on information needs, and leaders with different personalities meet information needs in different ways. Some leaders like simplicity, while others like details. Some leaders like to look at their watches, while others like to look at pictures. When writing an analysis report, analysts should understand the needs of these personalities and pay attention to the form of expression and the complexity of the report. But in any case, he should be prepared, even if the report itself is concise and intuitive, the supporting data behind the report should be detailed and specific. "Customer orientation" also requires us to improve the timeliness and pertinence of the analysis provided. If the report is not timely, the news will become history. A belated "perfect" report is worthless. Speed is extremely important, because sometimes, the accuracy of figures is not critical, as long as it can explain the trend, it is enough to point out the problem. Targeting is also essential. If the information provided by the analysis report is not needed and cared by users, it will be difficult to play a role. The "four understandings" are: 1, understanding the business model of the company's industry, understanding the company's strategy, understanding the assessment pressure of superiors or other managers, and understanding the specific difficulties faced by superiors or other managers. It is very important to understand the business model of the company's industry. Different business models have different success factors; Key performance indicators (KPI) vary with different success factors. Different KPIs also determine the different emphasis of financial analysis. If the financial analysis report, especially the internal analysis report, is only limited to a few general indicators listed in the textbook and does not conform to the business model and key success factors of the company's industry, it will not only provide high value, but may also be misleading in some cases. For example, the business model of a typical life insurance company can be described as: by providing valuable promises and services to customers, locking customers' funds with long-term contracts, and investing with accumulated funds to obtain stable investment income higher than the cost of capital acquisition. From the financial point of view, its success factors are (but not limited to) 1, the ability to obtain funds, including the amount and sustainability of funds, the cost of obtaining funds, cash flow matching or asset-liability management ability, and investment ability. On this basis, a financial analysis framework can be constructed. Of course, it is not the responsibility of financial personnel to describe the company's business model clearly, but the responsibility of management. However, as financial analysts, we should deeply understand financial analysis, and combine financial analysis with the successful elements of business model to design an analysis framework and system closely related to the successful elements. By comparing the differences between key indicators and preset ratios, we can find the changing trend of indicators and explore the reasons for the changing trend, thus providing valuable information and business suggestions for management. If so, management will be interested in the analysis report and make use of it. L understand the company's strategy. The company's strategy refers to how to establish and use its own core competitiveness and participate in market competition in selective regional markets and product markets. At different stages of the company's development, with the evolution of economic situation and market situation, the company's strategy will be different. Like the business model, the responsibility for formulating corporate strategy lies with the management, and financial analysts may rarely participate in it. However, if financial personnel want to make their financial analysis work play a role, they must understand the company's strategy and adapt their work results to it. For example, for a start-up insurance company and a mature insurance company, their strategic objectives may be very different, so the focus of financial analysis should also be different. For a start-up insurance company, his choice may be to quickly increase the scale, form a certain market influence, quickly lay out institutional outlets and seize market opportunities. Then for it, the underwriting profit rate is not an important indicator, but more importantly, the growth rate and the ability to supply funds. If the company chooses the strategy of focusing on high-end customers, the average premium of customers, or the number and proportion of customers above an average premium are key indicators, and the value analysis of individual customers will become relatively more important. If a company doesn't take its own agent team as the main channel, but chooses an intermediary company as the sales medium, then team manpower and per capita productivity naturally cannot be the main indicators. Understand the strategic objectives of the company, and describe the strategic gap between the appearance and the objectives with data, thus creating "visual tension". If financial analysis can achieve this effect, what else can I ask for? L understand the assessment pressure of superiors or other managers. There is a famous saying in management accounting, "What you evaluate, you get." The original intention of this sentence is that we must be cautious in the design of warning evaluation to prevent misleading behavior, which is counterproductive. This paper does not discuss the rationality of evaluation design, but points out that financial analysts should understand and understand the evaluation system and strive to improve the correlation between financial analysis report and evaluation design. Managers are bound to pay close attention to their evaluation. If financial analysis can help them in this respect, it will be welcomed, which is also the embodiment of customer orientation. For example, if the market position is an important evaluation index, then providing the analysis data of the market and competitors will inevitably arouse his interest. If embedded value or standard guarantee is an important indicator, then he is interested in the product composition that provides standard guarantee and the special analysis of high-standard guarantee products. If profit is a key indicator, then the source analysis of profit, the profitability analysis of products and channels, the calculation and analysis of break-even point, the difference of standard cost and the point of cost improvement are the key entry points. The in-depth study of the assessment system can also bring another benefit, that is, it can understand the management behavior of managers and prevent the manipulation of indicators. L understand the specific difficulties of superiors or other managers at present. Superior or other managers may face some difficulties at present and need help urgently. Maybe they don't expect financial analysts to do anything, but they will be grateful if financial analysts can understand their difficulties through financial analysis and help them do something. For example, the number of individual insurance teams in an institution has declined seriously. At this time, financial analysis emphasizes that the input-output ratio of individual insurance channels has improved year-on-year, which is obviously unpopular and unrealistic. On the contrary, if the analyst can further subdivide the cost, how to improve the effect of increasing employee input, how to arrange resources to provide long-term incentives for long-term service personnel, and provide special analysis of training costs, then managers will inevitably attach great importance to it and seriously study it. L Track the application of financial analysis results and promote a virtuous circle of application. As mentioned above, analysis itself cannot bring results, only action can. Financial personnel should put forward the improvement action plan after reaching a consensus with users while putting forward the analysis. In addition, if conditions permit, financial analysts should track the implementation of these action plans, provide further action evaluation and analysis in a timely and appropriate manner, and make greater efforts to promote actions that produce results and strengthen the positive cycle. It needs confidence, courage and perseverance to push for action. If a case can do this, it can also be used as useful vivid evidence for financial analysis, win the respect of users of analysis reports, and financial analysis itself can embark on a positive cycle. In short, improving the usefulness of financial analysis is a never-ending task. We must continue to strengthen our study, which is not only the promotion of "professionalism" in a narrow sense, but also the in-depth study and real concern for the company's operation. We must constantly improve our communication and promotion skills. In any case, we must always pay attention to the contribution of analysis to the company's final operating results, because only in this way will financial analysis become "useful" and more valuable.