3-2 Project One Financial Analyst Job Aid

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Feb 20, 2024

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Module Three Project One Patricia Smith Southern New Hampshire University FIN 320: Principles of Finance Financial Analyst Job Aid Patrick Murphy 1

FIN 320 Project One Financial Analyst Job Aid Our organization is currently looking to fill an open position for an entry-level financial analyst to join our fantastic team of financial superheroes. Our dynamic team makes a difference every day in how we impact businesses and our clients. As an entry-level financial analyst there are daily responsibilities that must be addressed and are important due to the effect these decisions may have. Therefore, below we have provided a description of responsibilities that are required for this position and information pertaining to the impact our day- to-day tasks and decisions can have on businesses and our clients. This position is an excellent opportunity for a highly motivated individual that is starting a career in finance; and they will also work closely with experienced professionals to gain insight, experience, and decision-making skills. Financial Responsibilities The position of a Financial Analyst has many duties and responsibilities. Below is a step-by-step guide of what responsibilities this position entails but are not limited to:  Gathering data and information  Gathering data and information for what is being analyzed, for example accounting data from a general ledger, historical financial reports, statistics, stock price information, etc. This information can be obtained from internal databases or third-party providers.  Organize Information  Once all the necessary information is gathered it must be entered into excel or in another database if required. After the information is entered it must be organized, cleaned up and formatted, whereas it will make sense and it is easy to understand. Which means the information can be sorted by categories or numbers, and formulas and functions utilized. Ensure that formatting styles are consistent.  Analyze Financial Results  Once all information is input and organized, it must be analyzed. This is done by reviewing past information and historical results. The information included in this will be ratios, gross margin, net margin, growth rates, fixed vs. variable costs, return on equity, return on assets, debt/equity ratio, earnings per share, etc. By looking at this information you will be able to see if there is a trend and benchmark performance against other companies in the same industry.  Making Forecasts and Projections  Historical information has been obtained and analyzed at this point. Based on this information projections and forecasts can be made pertaining to how the company will perform in the future. There are forecasting methods that can be used which include regression analysis, year over year growth rates, and bottom-up and top-down approaches. 2

 Developing Recommendations  Once all the above steps have been completed insights and recommendations can be provided on how to improve the operations of a business. Examples of recommendations can be ways to cut costs, operational efficiencies, ways to grow revenue, etc.  Making presentations of the obtained information  The information that has been input into excel or the database must be converted to charts and graphs to provide a presentation of the data.  Generate Reports  An important part of this position is the generation of reports. These internal reports provide key insight pertaining to performance or the tracking of actual or budgeted results. These reports are important to the company or to our clients and must be clear, easy to understand, accurate, insightful, and on time (Vipond, 2023). Financial Management Decisions By completing the above responsibilities and presenting this information to the company and clients it provides them with insight into the financial health of their company. In addition, it assists them in making informed decisions pertaining to investments, cost control, pricing decisions, budgeting decisions, and merger or acquisition decisions (Imarticus, 2023). For example, by financial analysts providing this information a company can decide whether they need to increase the price of a specific product they are selling or even maybe eliminate the product altogether. Furthermore, we always want to ensure that the company and our clients receive this information. However, if they fail to receive this information or it is inaccurate this could lead to financial mismanagement. In other words, it means that if they do not have this information this could lead to poor financial decision making that could cause loss of profit, bad operational decisions, penalties, fines, reputational damage, and even bankruptcy (Russo, 2022). For example, management does not have the financial analysts’ reports, therefore they assume their inventory is low and place a large order for a product, when in fact they have more than needed. This would cause an extreme financial burden on the company, especially if the product is not selling at an appropriate price or not selling at all. Accounting Principles As financial analysts we use accounting principles to analyze a business’s financial health. We want to ensure that our company and clients are well informed of their financial health for them to make informed decisions. Generally Accepted Accounting Principles (GAAP) are procedures, standards, accounting guidelines and principles that companies must follow to prepare their financial statements. Therefore, these accounting principle standards implemented by GAAP are used by financial analysts to review the financial statements of a company in order to determine their financial health. These financial statements include the company’s accounting information that is included in their income statement, balance sheet and cash flow statement (Crail, 2022). By having this information, a company can make informed decisions on how to invest, if pricing needs to change, budgeting, etc. 3

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Without the guidelines and standards of Generally Accepted Accounting Principles (GAAP) companies would not know the direction or financial health they are in. In addition, by not following GAAP guidelines, not having accurate information or if this information is not available could have dire consequences such as leading to poor financial decision making that could cause loss of profit, bad operational decisions, penalties, fines, reputational damage, and even bankruptcy (Russo, 2022). Financial Statements Financial Statements are used by financial analysts to help businesses make finance-related decisions. The statements needed to do the job are the income statements, balance sheet, and the cash flow statements. These are the reasons why:  Income statements – demonstrate a company’s financial position and performance over a period. We look at the revenue, expenses and profits earned in this statement.  Balance sheet – also shows a company’s financial position at a specific point in time and provides a snapshot of assets, liabilities, and owner’s equity.  Cash flow statements – provides insight into how the company used its cash during an accounting period. It demonstrates the sources of cash flow and the different areas where the money was spent, categorized into operations, investing, and financial activities. It also reconciles the beginning and ending cash balance over a period. By having this information, it can assist businesses in making informed decisions pertaining to investments, cost control, pricing decisions, budgeting decisions, and merger or acquisition decisions (Imarticus, 2023). For example, by analyzing the cash flow statement we can determine and inform the company and management the ins and outs of their cash flow and inform them whether they are generating enough cash to cover expenses and pay debts. Financial Terminology  Financial statement o Definition: written reports created by a company to summarize the business’s financial condition over a certain period. These statements include the income statement, balance sheet, cash flow statement, and statement of shareholders equity and they must be prepared by specific accounting standards (Vaidya, 2023). o How this is used: This term can be used by a financial analyst to discuss with management the assessment of their financial condition and health of their company (Titman, 2016).  Liquidity o Definition: refers to how much cash Is readily available, or how quickly something can be converted into cash (Hussain, 2023). o How this is used: this term can be used to explain to a business owner or company how much cash their company can quickly generate. In addition, this term can be used to inform them that if they have a lot of liquidity, they will be able to come up with cash to keep their operations running through turbulent times (Carlson, 2022).  Working capital o Definition: the difference between the firm’s current assets and current liabilities (Titman, 2016). 4

o How this is used: It can be explained as the amount of the company’s assets minus their current liabilities. This information can be used to see if their company has sufficient capital to fund new investments and if in the near future, they can pay off pressing obligations or if they need to obtain additional funding (Accounting Tools, 2023).  Diversification o 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 (Titman, 2016). o How this is used: a financial analyst can explain this term by indicating that diversification involves spreading their investments across different types of assets to minimize the impact. For example, if a farmer only grows one type of crop and there is an issue with this crop and lose it, they will lose everything, however if they grow several different types of crops, they will still have income even if one crop fails (Kostopoulos, 2021).  Time value of money o Definition: the basic idea that a dollar received today, other things being said, is worth more than a dollar received a year from now (Titman, 2016). o How this is used: this term can be used to explain to business owners that money available today is worth more than the same amount of money in the future because the potential to earn interest on their money today can increase its value (Titman, 2016). 5

References Accounting Tools. (2023, October 8). Working capital analysis. Accounting Tools. https://www.accountingtools.com Carlson, R. (2022, September 6). Analysis of liquidity position using financial ratios. The balance. https://www.thebalancemoney.com Crail, C. (2022, September 9). Generally Accepted Accounting Principles (GAAP) Guide. Forbes Advisor. https://www.forbes.com Hussain, A. (2023, May 23). What is liquidity? What it means and how to calculate it. Insider. https://www.businessinsider.com Imarticus. (2023, April 21). The Importance of Financial Analysis in Business Decision-Making. Imarticus Learning. https://imarticus.org Kostopoulos, D. (2021, June 1). The Strength of Business Diversification. Forbes. https://www.forbes.com Russo, K. (2022, March 20). What are the Risks of Inaccurate Financial Reporting? Oracle Net Suite. https://www.netsuite.com Stobierski, T. (2020, June 18). 4 Steps To Determine The Financial Health Of Your Company. Harvard Business School. https://online.hbs.edu Titman, S., Keown, A., & Martin, J. (2016). Financial Management: Principles and Applications, 13/e. Pearson Education, Inc. https://plus.pearson.com Vaidya, D. (2023). Financial Statements. Wall Street Mojo. https://www.wallstreetmojo.com Vipond, T. (2023). What Does a Financial Analyst Do? A Day in the life. CFI. https://corporatefinanceinstitute.com 6

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