Financial Planning and Analysis is an ideal career choice for problem solvers with an innate or a cultivated talent for financial analysis, forecasting, and modeling. So, if you dislike math or don’t like working with spreadsheets, then FP&A is not for you.

A good financial analyst is indispensable and he/she is expected to advise upper management, through careful analysis of the company’s finances, the most effective way to utilize its financial resources to increase profitability. All this while steering clear of any financial risks to help the company grow at an optimal rate.

As FP&A is not for everyone, there are specific traits that one should have in order to survive in the business. These include:

  • Attention to detail
  • Excellent communicator
  • Inquisitive
  • Enjoys working with spreadsheets in Excel and Powerpoint
  • Analytical mindset
  • Ability to manage internal stakeholders

What is an FP&A analyst?

Financial Planning and Analysis in its entirety comprises individuals within a company’s finance department/organization who provide management with forecasts of its income statements (Profit and Loss statements) and its operating performance for the upcoming year or quarter.

Among other talents, an FP&A analyst should be able to formulate different growth scenarios for an enterprise by deciphering the various puzzle pieces that fit together to constitute its finances.

It is the financial analysts’ job to research macroeconomic and microeconomic conditions along with all company fundamentals to make predictions about businesses, sectors, and industries. By doing so, they are then able to recommend a course of action. The financial analysts may then suggest to upper management to buy or sell the company’s stock-based upon its overall performance and outlook.

Most financial analysts have different sets of skills and a company will mostly hire them for different reasons. While some analysts may be hired for their skill and uncanny ability to use numerical data to pinpoint the efficacy of the various business strategies in relation to the cost, some are hired to help companies make the right investments, using their skills to analyze the stocks and bonds market.

Types of financial analysts

A financial analyst will typically work for any enterprise that frequently makes huge decisions on how to spend money. These businesses include insurance firms, local and regional banks and real estate investment brokerages.

With the field of financial analysis being as broad as it is, there are three major types of analyst positions within the finance and investment industry that most financial analysts aspire to. These are:

Sell side analysts

In the context of investment banking roles, the sell side includes the entities that facilitate the decision-making process of the buy side. Sell side firms include investment banks, advisory firms and brokerage firms and they tend to issue, sell and trade-in financial securities.

A sell-side analyst works for these firms, where they keep track of the performance of the various companies and their stocks and conduct various analyses to create equity research reports. They then project future financials and come with research recommendations, which stimulate the process of buying and selling of financial instruments. This process in turn produces commissions for the brokerage firms.

Sell-side analysts usually work with annual and financial reports that include very detailed analysis of the balance sheet and quarterly results. They work with this information to essentially sell ideas to their clients that make them make investment decisions. 

Buy side analysts

Buy side analysts provide financial research and recommendations for the benefit of a company’s own money managers exclusively. These analysts are required to identify the best investment opportunities that will improve the net worth of the portfolio for which they work. They are tasked with determining how favourable an investment is and if it is well-suited to and fits with the company’s investment strategy.

Buy side analysts usually work for various investment firms including private equity firms, pension and endowment funds, hedge funds and insurance firms. Buy side analysts have to be constantly up-to-date with current news and trends and build financial models by tracking down valuable information. The analysts have specific sets of skills required and these include:

  • The ability to constantly monitor portfolio performance.
  • To constantly be up-to-date with global economic trends.
  • The ability to generate high-quality and timely forecasts and reports for investment decisions.
  • Have an intellectual eye for investment opportunities.
  • The ability to analyze risk and industry characteristics

Although buy side financial analysts rarely have a say in how their employees or clients spend their money, the forecasts they make and the trends they uncover plays a huge role in the decision-making process.

Investment banking and equity analysts

Equity research analysts are in the unique position of being in demand from both brokerage firms from the sell-side and the funds from the buy-side. These analysts typically research public companies, help locate auspicious IPO opportunities  and come up with recommendations that help investors decide whether to buy, sell or continue holding stocks.

Analysts in investment banking firms help them determine whether or not huge deals such as IPOs (Initial Public Offerings) and M&As (Mergers and Acquisitions) between different companies are feasible. They focus on the most equity markets to find the companies that represent the most lucrative opportunities for ownership. 

How to become an FP&A analyst

Although the qualifications for FP&A analysts are not as rigid as those for other high-paying jobs, they are well-defined. A bachelor’s degree, with a major in either finance, economics or statistics is the de facto requirement for financial analyst position.

However, if one has an interest in specializing in other industries, then other majors that one should consider are accounting, mathematics, engineering and biology.

The financial analysis job market is highly lucrative and the big investment banks that pay huge first-year salaries usually recruit from elite universities such as Princeton and Havard universities almost exclusively.

Prospective financial analysts can increase their chances of being hired at the huge firms by supplementing their degrees from less-prestigious colleges with MBAs from highly-ranked business schools. This levels the playing field and more often than not, candidates with MBAs are usually recruited as senior analysts.

FP&A certification examinations

There’s more than one way to become a certified FP&A analyst. There are certification exams that are available for those who do not have an MBA or did not major in Economics as undergraduates. These include:

1. Participating in the Chartered Financial Analyst (CFA) program

The CFA Program benefits individuals with backgrounds in economics, business,finance or accounting. It is a three-part exam that tests the fundamentals of investment tools, valuing assets, portfolio management, and wealth planning. 

A CFA certification equips individuals with real-world skills and the right expertise in investment analysis that help you move forward in their careers.

2. Series 7 and Series 63 certifications

The series 7 was formerly known as the General Securities Representative Qualification Examination and it enables the holder of this certification to sell all types of securities products except futures and commodities.

This exam focuses on investment risk, taxation, equity, and debt instruments; packaged securities, options, retirement plans, and interactions with clients for prospective securities industry professionals.

The exam and consequent licensing is administered by the Financial Industry Regulatory Authority (FINRA). It is an introductory-level exam that tests the candidates knowledge of basic securities industry information.

The series 63 exams on the other hand was developed to qualify candidates who want to work in the securities industry within a state. It allows them to sell investment products, such as variable annuities, mutual funds, and unit investment trusts.

The 60 multi-choice questions exam is administered by FINRA and it requires one to get a score of 72% and above to pass. Candidates of this exam should familiarize themselves with the Uniform Securities Act of 1956 and the North American Securities Administrators Association(NASAA) Statement of Policy and Model Rules.

What does an FP&A analyst do?

FP&A professionals in general oversee a wide array of financial affairs that include financial statements, capital expenditures, expenses and taxes etc. financial analysts in particular are tasked with evaluating, examining and analyzing a corporation’s financial activities and mapping its financial future.

Here’s a list of the more specific roles for an FP&A analyst:

  • An FP&A analyst works with individual departments to prepare and consolidate budgets into an overall corporate budget. This task requires the analyst to develop the operating and financial plan needed to achieve its strategic plan.
  • They evaluate whether the company’s investments and current assets are the best use of its excess working capital. They also look into other ways that the company might use its cash flow by analyzing the Return on Investment.
  • They identify the company products that have the highest and lowest profit margins.
  • They identify and determine the company products and product lines that generate the greatest amount of net profit. This is a different inquiry from the product’s profit margin as a product with a high profit margin may not necessarily generate the biggest total profit.
  • They create, update and maintain financial models and detailed forecasts of the company’s future operations.
  • They perform variance analysis to explain the differences in performance and suggest improvements as the company moves forward.
  • They map out growth plans which include investments and capital expenditures, giving the company options to consider for growth or expansion.

An advantage of working as an analyst at a huge firm means that you can get promoted to FP&A manager especially since company’s do not do external recruitment for the position as it is not an entry-level position.  FP&A Managers lead multiple Analysts and Senior Analysts and ensure that processes such as variance analysis, budgeting, and efficiency improvements happen regularly.

FP&A tools that FP&A analysts use that eases their loads

A company’s mobility and flexibility is affected greatly by FP&A reporting. These tools give businesses the ability to swiftly identify potential problems and react to changes in the market.

Companies should not have to rely on individual managers to provide information from non-integrated and disconnected systems. The key to smart decision-making is to use properly formatted data that is both quick and accurate.

In the past CFOs relied on historical events and numbers to create forecasts. But the business field is rapidly changing and CFOs need to be forward-looking by using various software that helps finance to centralize, monitor and stay on top of every client, prospects and budgets. The different tools include:

1. Financial Planning and analysis software

Every enterprise needs an FP&A software. A cloud-based solution such as DataRails is ideal as it allows the owners to be more accurately informed and make faster decisions. Cloud-based solutions have certain features that allow for accurate and fast budgeting and forecasting which makes businesses achieve significant benefits over those that use on-premise solutions.

The FP&A software is by far the most important tool that an analyst requires. It has a set of functions that work cohesively to simplify the FP&A process. These are:

  1. Budgeting and forecasting
  2. Regulatory reporting
  3. Financial and management reporting
  4. Integrated planning

2. Accounting Software

Accounting is not separate from FP&A and as such good accounting software centralizes data in one system, which gives the analysts easy access to the data. Modern accounting software helps accountants keep track of their audit books and expenses.

3. Payroll software

Modern payroll software enables the users to automate core processes such as filing payroll taxes and setting payroll on autopilot. 

FP&A tools result in precise reports and accurate work which gives analysts smarter insights that affect the decision-making process.

4. Accounts payable software

The accounts payable software integrates a company’s purchasing needs and conveniently brings them together in one place. This improves expense and vendor management.

Summary

Overall economic activity determines the demand for financial analysts. With emerging businesses around the world providing new investment opportunities, financial analysts are in demand and they will be needed to evaluate the investment opportunities arising from the emergence of new businesses and the expansion of old ones.

An FP&A analyst is recognized as a workhorse. The career is rewarding with a chance of growth. The career path typically starts at the level of analyst and gradually progresses to director of FP&A. Offering a stable work-life balance,  this career choice enables you to grow in your profession.