Predicting financial trends isn’t easy, regardless of how the economy is doing at any given moment. If 2020 has taught us anything, it’s that everything can change very quickly. With that said, financial analysts are tasked with the difficult job of making sound investment recommendations in a very volatile marketplace.
If you’re a financial analyst, then you need to set yourself up for success in 2021 by using tools that will guide you in making investment predictions. Here are some of the best tools to consider in the coming year, which will likely prove to be both challenging and interesting for the financial sector.
Are You Utilizing Tools for Financial Analysis?
Many people are interested in financial analysis careers because they are fast-paced and exciting, pay well, and can be extremely interesting. But in modern financial analysis, it’s difficult to keep up with the large amount of data flowing into financial institutions.
If you’re not leveraging the top tools for analysts, then you won’t have access to all of the insights that are available for different investment opportunities. With big data, you have to be able to process and sift out the most important information so you can use it to help your clients. It’s important to note, though, that software will only support you in your analysis. You have to be the one making the decisions.
Choosing the right financial analysis software can be challenging. There are so many options available that it’s easy to get overwhelmed. You have to think about factors like what features take priority and the size of your organization. If you’re not the decision-maker, you may not have much say in which software you use, but you can still use extra tools to boost your success in 2021.
Many people underestimate the power of Excel in financial analysis, but this simple Microsoft Office program is extremely important for successful analysts. It’s a great tool for data analysis, allows analysts to create forms, and supports a wide range of plug-ins. It’s absolutely worth exploring for any financial analyst in 2021 and beyond.
As with any program, there’s always a bit of a learning curve. If you haven’t used Excel much in the past, it can be worth checking out an online training course or book on learning to use it. Because the program is so popular, there are countless training options.
These days, you need more than a solid understanding of math, money, and good intuition to succeed in finance. Programming is becoming more and more important in a world ruled by big data. Although there are many different programming languages financial analysts can learn, Python is one of the most versatile and well-supported languages.
Keep in mind that learning Python for statistical analysis is an advanced technique. It will allow you to use algorithms to gain more complex insights, but it takes some time to learn. If you really want to brush up your resume, Python could be the way to go.
No financial tool is perfect, and it’s important to understand both the benefits and drawbacks of each tool you are using. Ratio analysis, for instance, will give financial analysts information on factors like liquidity, rate of return, and profitability, but it also does not take inflation into account and can’t use changes due to season and marketplace conditions.
Ratio analysis is a common and useful tool in any year. But in 2021, financial analysts also need to understand its limitations, especially in a volatile market. Your common sense, combined with different tools, is what will make you successful.
Being able to compare one company’s financials to another is extremely useful in financial analysis. Benchmarking analysis can be extremely useful, especially when comparing organizations that are at different stages of development. Again, benchmarking has its limits and must be combined with other techniques, but it is a tool that every financial analyst should be using.
Unique Challenges of Financial Analysis in 2021
2020 has been a wild year in finance, and 2021 will probably be unpredictable as well. Though vaccines for COVID-19 are now being distributed, only time will tell as to how vaccinations will affect different markets. As a financial analyst, all you can do is arm yourself with the best tools and get ready for a bumpy ride!