Today, data analytics transforms how professionals approach everything from asset management to fraud detection. By leveraging vast amounts of data, sophisticated algorithms, and powerful computing tools, financial analysts can uncover patterns, make more accurate predictions, and ultimately make better-informed decisions.
In this beginner’s guide, we explore the role of data analytics in finance and offer a foundational understanding of the key concepts, tools, and techniques. Whether you’re a finance professional looking to enhance your skills or a newcomer eager to enter the field, this guide will equip you with the knowledge you need to navigate the data-driven world of modern finance.
For more in-depth learning, we’ll also recommend a data analytics bootcamp at the end of this article. So stay tuned!
Data Analytics in Finance Explained
In the past, finance was synonymous with accounting and bank visits. Not anymore. Finance has blossomed into a full-fledged giant with multiple facets. It tries to explore and integrate upcoming technologies into its processes to ensure smooth customer service and improved operations. One of the key technologies it uses is data analytics, also referred to as financial analytics.
Financial analytics involves collecting and analyzing data from an organization’s functions, financial processes, customer information, and sales transactions. It also examines the impact of strategic decisions. This process helps organize large amounts of customer data into a manageable format to gain crucial insights. It facilitates forecasting critical metrics and guides decisions about investing and planning strategic goals. These goals include venture capitalism, mergers, acquisitions, bonds, mutual funds, and stocks. Financial analytics has become essential in every financial decision due to its proven impact on an organization’s economic status.
Also Read: What is Text Analysis?
Examples of Data Analytics in Finance
Kabbage
Kabbage from American Express, an online financial technology enterprise headquartered in Atlanta, Georgia, utilizes data analytics and machine learning to assess and calculate the creditworthiness of small organizations.
Kabbage employs analytics to analyze data mined from banking transactions, social media interactions, and online sales. It implements machine learning models to adapt, learn, and update credit assessments.
Further, text-based data is treated using natural language processing for additional customer profiles and preferences. Not only has the accuracy of credit scoring increased, but Kabbage can now create detailed credit profiles for those businesses that do not fall into the traditional credit brackets.
Westpac
Westpac, a financial leader based in Australia, has developed a product called Westpac DataX. This product utilizes data analytics to evaluate economic trends, market conditions, and the impact of decisions.
DataX helps derive actionable insights from de-identified data from the tremendous amount of credit card information and transactions processed through Westpac daily. The clients can benchmark their performance and integrate the results and recommendations into their processes. They can visualize their data using interactive dashboards displaying key metrics to enable greater reporting capabilities. The clients can then optimize their processes and focus on producing and delivering customized products to targeted groups.
Top Uses of Data Analytics in Finance
The examples described in the previous section are just the tip of the iceberg. Let’s briefly go through the top use cases for financial analytics.
- Data analytics can help identify risks and opportunities and recommend the most appropriate actions.
- Fraudulent transactions and financial discrepancies can be detected by using data analytics to assess the data for the typical trends and flag instances that vary from the trends.
- Businesses can use data analytics to gather data to assess customer preferences and requirements. They can then create and market products that align with customers’ financial behavior and potential for investments.
- Investment decisions cannot be made on a whim. They require a deep analysis of businesses, stocks, funds, and commodities to determine their investment potential. Data analytics can use historical and current data on companies’ financial status to decide on the best course of action.
- Data analytics uses predictive and prescriptive methods to develop financial models that identify trends and extrapolate data to predict values such as stock prices and their variation. This helps people decide which stocks to invest in.
- Data analytics combined with machine learning and artificial intelligence can be automated to flag issues such as unauthorized transactions and data breach attempts and implement rapid responses to routine security issues.
- Data analytics helps assess customers’ financial behavior, evaluate complaints and feedback, and implement changes in the system to provide suitable redressal.
- Financial analytics facilitates a deep dive into the financial status, liquidity ratio, and debt ratio of the organization and its competitors to determine the benchmarks.
Also Read: What is Cohort Analysis? Types, Benefits, Steps, and More
Why is Data Analytics in Finance Important?
Data analytics in finance is critical because it assists enterprises in reconciling the larger strategic objectives to the existing financial scenario in their organization and the market. Financial analytics enables a numerical understanding of trends, year-end reports, customer behavior, market demands, and feedback received through multiple channels. It is like a sieve that removes the unnecessary noise and gives you fine clay of the most relevant data that can be used to build a figurine of an optimized financial future.
Metaphors apart, data analytics helps objectively identify the pros and cons of investing in individuals or other businesses. It can also help you assess how to make investment decisions and what factors to consider.
What Does a Data Analyst in Finance Do?
A financial data analyst integrates his financial and data analytics skills to facilitate data-driven decisions that enhance their integrity and impact. They undertake four primary tasks.
Preparation
A financial analyst conducts a literature review of the situation to be addressed. They study the economic, social, and technological context and determine the core issues.
Data Mining
The financial analyst then establishes the objectives of the analysis exercise and selects the sources that can provide the most suitable data. They then use appropriate techniques to access the sources and collect raw data.
Data Processing and Analysis
The next step involves cleaning and processing the data to transform it into an analyzable form. The financial analyst then chooses a suitable model and statistical technique to analyze the data and determine the required metrics.
Data Visualization
The analyzed data is understandable only if presented simply and informatively. Hence, the financial analyst chooses a suitable tool that uses myriad visualization formats to show the metrics and assist in formulating appropriate decisions.
Reporting
Reporting the data is crucial to making it discernable for a wider audience. The financial analyst uses their communication skills to report data and make inferences. They may add recommendations that align with the strategic goals. They include models that could be used to predict future trends and support the organization’s budgeting operations.
You must choose a reputable data analytics program that trains you in the multiple tasks that a financial analyst is required to do.
Also Read: SQL for Data Analysis: Unlocking Insights from Data
Essential Skills of a Financial Data Analyst
Financial analysis requires you to understand the financial aspects of a business and transform them into data that can be efficiently analyzed. Apart from a graduate degree in Computer Science or Finance, here is a list of skills you must develop to progress in this field.
- Proficient in coding and programming languages such as Python and SQL
- Conversant with financial concepts such as investment banking, capital market, derivatives, trade life cycle, and other financial products
- Expertise in data analytics, data mining, data processing, and analyzing and forecasting sales and expenses
- Experience in accounting and financial reconciliations
- Proficient in tools and platforms such as Hyperion Financial Management (HFM) and Infor Enterprise Resource Planning (ERP), MS Office toolkit, SAP, Oracle ERP, Oracle Financials, Microsoft Power Business Intelligence (MS Power BI), and Oracle Business Intelligence Enterprise (OBIEE)
- Excellent communication and business report writing skills
- Collaboration and team player
A typical career in financial analytics includes the following stages:
- Junior financial analyst, who analyzes and reports data in a manner that is comprehensible to other departments utilizing the analysis results.
Average annual salary: $62,716
- Senior financial analyst who utilizes forecasting, budgeting, and predictive analytics to identify trends and support financial initiatives.
Average annual salary: $94,652
- Portfolio, fund, or treasury manager, who creates and manages investment and fund portfolios and uses analytics to decide the most suitable portfolios. They also conduct risk assessments and manage the company’s cash flow and financial decisions.
Average annual salary: $107,537
- Chief Financial Officer (CFO) or Chief Investment Officer (CIO), who is responsible for overseeing financial statements and internal control systems. They establish and support long and short-term strategic plans to improve the company’s operations. Average annual salary: $153,526
Apart from these roles, you can also venture into risk management. Overall, the field of financial analytics is expanding, and newer roles are being generated every year.
Future of Data Analytics in Finance
With more and more businesses from all sectors adopting a data-driven approach to finance, the future of data analytics in finance is bright. As enterprises work on integrating data from multiple sources, such as marketing, transactions, and social media, there is sufficient raw data for financial analytics.
The need of the hour is a comprehensive approach to data analysis that could provide more accurate financial predictions. As per the US Labor Department, the demand for financial analysts is poised to grow by at least 8 percent by 2032, with almost 27,400 openings expected every year. Therefore, this is a golden time to dive deep into this dynamic field.
Learn Critical Skills to Employ Data Analytics in Finance
Finance is one of the major sectors where the demand for data analysts will continue to grow. As a financial analyst, you must have a circumspective vision and be able to apply your data analytics expertise to solve critical hurdles in the financial processes. You can do this by selecting future-ready data analytics training designed to teach you all the relevant concepts.
During this bootcamp, you will learn the basics of analytics using Excel functions, formatting, pivot tables, data acquisition and manipulation using SQL, data visualization using Tableau, and Python programming fundamentals. You will also gain skills such as building data pipelines, clustering using k-means, data storytelling with Power BI, and regression analysis.
Enroll today to work under the guidance of industry experts and add industry-relevant capstone projects to your portfolio.
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Data Storytelling: Unlocking the Narrative Power of Data
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Data Analytics Applications: Types, Use Cases, and Top Tools
