Senior Financial Analyst: What They Do to Earn That High Salary

Senior financial analysts (Sr financial analysts) earn $81,017 on average in the united states, while normal financial analysts, only $61,060. That’s an average increase of 32%.¹ At the same time, it’s difficult to envision that senior analysts do significantly more than normal analysts, which begs the question: what does a senior financial analyst do?

In short, senior financial analysts dig deeper in their analysis and assume greater responsibility in communicating their findings. They incorporate data query languages and statistical programs to congregate a broader range of data on which they can execute rigorous mathematical assessments, and they simplify findings in high-level PowerPoint presentations for management reporting.

In other words, senior financial analysts perform the same tasks as financial analysts, but at a more advanced level. While the exact tasks financial analysts do may vary by industry and company, we can identify 5 key functions and show how senior financial analysts add additional value.

5 key functions of financial analysts are:

1. Gather financial and commercial data.
2. Build financial models in Excel.
3. Create and automate reports where possible.
4. Forecast future performance.
5. Crafting management reports in PowerPoint.

Let’s examine how senior financial analysts take on more responsibility in each of these functions.

Gathering financial and commercial data

The first step to any productive financial analysis is getting the right data. There are two main kinds of data that financial analysts use for analysis:

1. Accounting data (aka actuals), which is data that comes straight from the company’s general ledger, trial balance, profit & loss statement, and balance sheet. These are in most cases audited.
2. Commercial data, which comes from the company’s business units as raw data, and is not audited. This data is highly useful to financial analysts, as it allows them explore sections of the financial statements in depth.

Accounting data is available in mature companies and young companies alike, as it is required by law in most developed countries. However, commercial data must be collected by a dedicated team, which young companies may not have.

Developed companies often have commercial data may be readily available either through database software, or in the case of capital market financial analysis, through paid subscriptions to third-party software.

So why is this important for financial and senior financial analysts?

Senior financial analysts in data collection

Financial analysts are usually not expected to implement data collection processes, whereas senior financial analysts often lead such projects. This is part of the additional responsibilities they take on.

In many cases, senior financial analysts must work with data analysts and business intelligence teams to identify what data is needed, who needs to collect it, and what software will be needed to do so. Communicating with them is an additional skill.

Even in companies where commercial data is available, senior financial analysts must continually strive to improve their analysis. This means they must push for different data collection and data consolidation processes within the company. In this way, senior financial analysts work cross-departmentally to achieve their goals.

Financial analysts in data collection

Normal financial analysts, on the other hand, would not usually be responsible for managing a project with so large a scope. The high-end of data collection for financial analysts usually consists of requesting raw data from different department heads by email, not implementing technical changes.

Building financial models in Excel

Financial analysts spend more of their time building excel models than almost any other task. Financial models in Excel help the organization understand how its operations and business strategies translate into financial performance. They also help managers understand financial risks, and funding options in the immediate and long-term future.

Some of the most common Excel financial models include:

• P&L Financial Model – Revenue Drivers
• Growth funnel calculations
• P&L Financial Model – Cost of Sales Drivers
• P&L Financial Model – Operational Cost Drivers

Here’s what senior financial analysts do differently for each of them.

P&L Financial Model – Revenue Drivers

A P&L financial model is nothing more than actual numbers plugged into Excel with a logic of referenced cells to calculate revenues and cost of sales. Most of the time, the logic for revenues is [price by unit * number sold], and the logic for cost of sales is [price by unit * number purchased.]

Financial analysts would likely use this base logic, or expand the revenue calculation to include customer information where possible, for example by using [# of customers * number of purchases * price per purchase]. However, they usually stop at that this degree of detail.

That’s not to say these calculations are easy. On the contrary, in companies with a large number of products, even simple multiplication can require a significant time investment and demand for data collection.

Senior financial analysts, on the other hand, develop complex statistical models that attempt to identify all relevant revenue drivers. Since revenue drivers dependent heavily on the industry, it’s difficult to give an outline.

In most cases, this additional analysis consists of clustering customers based on intuitive criteria or using statistical clustering called k-means. These clusters are then used as the basis for growth funnel calculations, which we’ll look at now.

Growth funnel calculations

A growth funnel is a way of looking at revenue generation based on the mnemonic device “AAARRR” It’s most common in e-commerce companies, since they have more data than traditional businesses. AAARRR stands for:

1. Awareness. How the customer becomes aware of the product. The most common metric used to understand awareness are online advertisement views and clicks.
2. Acquisition. How the customer makes his/her first non-financial interaction with the product. The most common metric used to understand acquisition is signing up, either to be a member or for a newsletter. Acquisition is the moment a customer chooses to interact with the product or brand.
3. Activation. How the customer makes her first purchase with the brand. The most common metric used to understand activation is “first bill” or “first purchase,” terms used to indicate — you guessed it — the first purchase a customer makes with a brand. It could be a small product or a large one. The important thing is there’s a financial interaction.
4. Retention. How long the customer continues to purchase from the company. The most common metric used to understand retention is the notorious customer lifetime. This is an advanced statistical calculation used to determine what the average life is for a customer. Obviously, customers may come and go over the course of years. But what senior financial analysts want to determine is how long they actively purchase. (Fun fact: the average customer lifetime is usually no longer than a few months for digital products.)
5. Referral. How satisfied the customer is with his/her experience, and therefore likely to share. The most common metric used to understand referral is the customer satisfaction rating. This is usually determined using questionnaires or using statistical analysis on chat logs with customer service representatives.
6. Revenue. The money coming from customers from activation to referral.

It’s important to remember that the growth funnel applies to each of the clusters that the senior financial analyst develops using k-means.

Financial analysts sometimes perform clustering and execute growth funnel calculations, but the degree of complexity usually requires someone with more experience — the senior financial analyst.

P&L Financial Model – Cost of Sales Drivers

On the flip side of revenue drives are cost of sales drivers. In most companies, cost of sales are directly proportional to revenues, so little analysis is needed. A financial analyst simply takes an average percent of the revenues to determine them.

However, some companies collect additional information on cost of sales. A common example occurs in marketplace companies (where people come together to buy and sell goods/services, such as Ebay).

In such cases, a senior financial analyst uses the same growth funnel mentioned above to investigate the nature of the people selling on the website.

P&L Financial Model – Operational Cost Drivers

Operational costs are expenses unproportional to revenues. They include items like employee salaries, office supplies, professional fees, and travel expenses.

Most companies have cost control centers to better understand how operational costs work. Each cost center has a cost center owner who reports expenses to the financial analysis team. He/she is usually responsible for submitting a budget with expected costs at the beginning of each year.

Financial analysts compare these reported costs to the previous year’s numbers as well as to expected costs provided at year start. They may challenge the owners on reported figures, but their primary objective to to analyze how these operational costs impact the company’s financial performance.

Senior financial analysts, on the other hand, may also be responsible for implementing the cost center structure. One of my biggest tasks as a senior financial analyst was setting up a budget with cost centers. It requires skills beyond the technical. Senior financial analysts need to communicate, organize, and structure this process to ensure the organization records operational costs with minimal friction.

Balance Sheet Model

The balance sheet shows the company’s assets, liabilities, and equity at a one point in time. It does not show how the company performs during a given period, only how “healthy” it is at the end of that period. For this reason, the balance is less important than the P&L to financial analysts, who are more concerned with performance.

Nevertheless, it host important information about debts, as well as payments and receivables that are outstanding. These elements are critical to the company’s operations, and both financial analysts and senior financial analysts model it in Excel to show how it relates to the P&L (learn more about financial statements here).

Financial analysts use the balance sheet to calculate financial ratios. In the case of the balance sheet, these are liquidity ratios, which show how well the company can use cash on hand and upcoming payments to pay for its costs and debt payments. This is a fundamental exercise for any analyst.

Senior financial analyst, on the other hand, go a step further. In addition to calculating ratios based on the financial statements, they build working capital schedules using raw data on accounts payable and accounts receivable to understand the exact inflows and outflows of cash in the company. In addition, they model loans using loan payment schedules to consolidate with working capital schedules. This consolidated schedule provides the company with a timeline of payments. Senior financial analysts often work in collusion with treasury analysts to build these timelines.

Creating and automating reports where possible

Reports are an essential element of the financial analysis department. Typically, the include one of the above Excel models broken down by specific products in the company.

For example, imagine an e-commerce store that sells watches. The company sells 3 core watches in bulk to retailers.

Financial reports for a company like this would likely include a P&L view of each product. By breaking revenues down by product, management teams get a much clearer picture of how the company performs.

Financial analysts would likely collect this information from accounting software and build an excel model by product, with some commentary in the margine.

Senior financial analyst, however, seek to automate these reports as much as possible. Using our example of the watch company, a senior financial analyst will compile an Excel file that translates raw data into a pivot table. The automation part comes into play with the database.

Senior financial analysts may use knowledge of SQL to automatically query accounting data from a database. They would have a linked Excel file to update an Excel sheet, which then feeds the pivot table. From there, it’s simply a question of formatting.

Forecasting future performance

Perhaps the most well-known technique in the financial analysis arsenal is forecasting. Forecasting is the use of prior data to project future data. While forecasting methods are many, most financial analysts only use two simple ones:

1. Moving average. Moving averages are calculated as the average of the target metric over previous periods. For example, a moving average projection for revenues in the month of April would be an average of revenues in January, February, and March.
2. Growth rate. Growth rates are arguably the simplest form of projection. A financial analyst takes an assumed growth rate, perhaps basing it on previous growth rates, and applies this to the current period to project the next period. For example, imagine revenues for 2020 are 100k. If we use a growth rate of 10%, we predict 2021 revenues will be 110k.

Senior financial analysts, however, use more sophisticated techniques, including exponential smoothing, multivariable regressions, and autoregressive integrated moving averages. While these are outside the scope of this article, suffice it to say they are more complete and more accurate than moving averages and growth rates.

Crafting management reports in PowerPoint

The most significant task senior financial analysts have to tackle is management presentations. While as financial analysts they prepared many management reports, the occasion to present them was reserves to seniors.

They must build professional-level PowerPoint presentations that incorporate only key findings in a concise format. An common example is condensing a P&L to only the revenue, cost of sales, gross margin, and net profit lines on one slide. They can use this condensed structure to show how each metric compares to both prior performance and expected performance.

Management presentations require practice. The goal is to be succinct enough to communicate only the most important information while being thorough enough to provide them with all the details they need to make informed decisions.

Conclusion

Senior financial analysts make the big bucks because they take on more responsibility and dig deeper in analysis using data and statistical skills.

In the 5 key financial analyst functions, they provide added value. Here’s a recap of how:

1. Gather financial and commercial data. Senior financial analyst implement data collection technology to optimize the integrity of data they analyze.
2. Build financial models in Excel. Senior financial analyst dig deeper in revenue, cost of sales, operational costs, and balance sheet payment timelines to provide superior insights in their models. Notably, they use payment schedules and the growth funnel techniques.
3. Create and automate reports where possible. Senior analysts use SQL skills to link accounting databases into Excel to generate automatic reports.
4. Forecast future performance. Senior analysts go beyond moving averages and growth rates to more accurately predict future results. Notably, they use exponential smoothing, multivariable regressions, and ARIMA techniques
5. Crafting management reports in PowerPoint. Senior analysts build excellent PowerPoint presentations to show managers just the right amount of detail they need to both understand the topic quickly and make informed decisions on it.

1. Payscale.com [↩]