The Role of FP&A

How FP&A supports a corporation

The role of Financial Planning & Analysis (FP&A) at a corporation

A crucial role in corporate finance is played by a team of corporate financial analysts, whose work is collectively referred to as financial planning and analysis (FP&A). As a team, they perform analysis that supports major corporate decisions of the CFO and CEO.

Very few, if any, companies can be consistently profitable and grow without careful financial planning and cash flow management. The job of managing a corporation’s cash flow typically falls to its FP&A team and its chief financial officer (CFO).  Read more about the role of the CFO.

Corporate financial planning and analysis professionals utilize both quantitative and qualitative analysis of all operational aspects of a company in order to evaluate the company’s progress toward achieving its goals and to map out future goals and plans. FP&A Analysts analyze economic and business trends, review past company performance, and attempt to anticipate obstacles and potential problems, all with an eye toward forecasting a company’s future financial results.

FP&A professionals oversee a broad array of financial affairs, including income, expenses, taxes, capital expenditures, investments, and financial statements. Unlike accountants who are in charge of recordkeeping, financial analysts are charged with examining, analyzing, and evaluating the entirety of a corporation’s financial activities, and mapping out the company’s financial future.

 

role of fp&a

 

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The top 10 roles of corporate FP&A

Here is a brief list of top 10 responsibilities that lie on the shoulders of corporate FP&A:

  1. Evaluating whether the company’s current assets and investments are the best use of the company’s excess working capital, looking at return on investment (ROI) and comparisons with other ways the company might utilize cash flow (e.g., other possible investments, increased stock dividends, etc.)
  2. Gauging the company’s overall financial health, primarily by using key financial ratios such as the debt to equity ratio, current ratio, and interest coverage ratio
  3. Determining which of the company’s products or product lines generate the largest portion of its net profit
  4. Identifying which products have the highest profit margin (and which have the lowest) – This is a separate inquiry from the one listed above, as product(s) that carry the highest profit margin may not necessarily be those that generate the greatest amount of total profit – A simple example: Product A may carry a higher profit margin than Product B, but the company may sell substantially more units of Product B
  5. Examining and evaluating the cost-efficiency of each department of the company, in light of what percentage of the company’s financial resources each department consumes
  6. Working with individual departments to prepare budgets and consolidate them into one overall corporate budget
  7. Preparing internal reports for executive leadership and supporting their decision making
  8. Creating, updating, and maintaining financial models and detailed forecasts of the company’s future operations
  9. Comparing historical results against budgets and forecasts, performing variance analysis to explain differences in performance and make improvements going forward
  10. Considering opportunities for the company to expand or grow; map out growth plans, including capital expenditures and investments, and generate three- to five-year financial forecasts

In the end, a company’s financial analysts are expected to provide upper management with analysis and advice regarding how to most effectively utilize the company’s financial resources to increase profitability and grow the company at an optimal rate, while avoiding putting the company at serious financial risk.

 

How to determine if FP&A work is right for you

Good financial analysts are individuals capable of handling and intelligently analyzing a mountain of different types of data and data evaluation metrics.

Financial analysts are good problem solvers. They are able to decipher the various puzzle pieces that constitute a company’s finances and envision putting the pieces together to formulate a variety of possible growth scenarios.

If you just don’t like math or working with spreadsheets like Excel, you may want to consider an alternate career choice.

But if you’re a creative problem solver, with a natural or cultivated talent for financial analysis, modeling, and forecasting, then becoming a corporate financial analyst may be the perfect career choice for you.

To see if an FP&A career is right for you, explore our interactive Career Map.

 

Potential income and salary for FP&A professionals – $50k to $1 million

People who excel at the work of analyzing corporate finances and accurately identifying what financial moves a company should make in order to be optimally successful in an ever-changing marketplace are well paid for their skills.

Entry-level junior analysts command annual salaries in the neighborhood of $50k. Senior analysts can see a salary up to $100k, usually combined with potential bonuses of 10-15%. A financial planning & analysis manager or director, and the chief financial officer (CFO) at a major, multi-national company typically rake in somewhere between six and seven figures in salary, supplemented with sizable performance bonuses.

Compensation in the financial analysis field varies substantially between different industries and companies. Obviously, larger companies with larger profits can afford to pay more than a smaller company whose total net profit might not even reach seven figures.

Bonuses are usually very dependent on the company’s profits and/or the analyst’s skill in making accurate financial forecasts. (Of course, this can potentially lead to problems if an analyst derives overly conservative growth strategies designed primarily to ensure that profit targets are merely hit rather than maximized.)

Positions in corporate finance are projected to see annual job growth upwards of 20% through the mid-2020s.

To learn more, see our FP&A career profile.

 

Decision making and learning skills

Although financial analysts have to evaluate a number of complex financial options and scenarios, they must also be capable of making firm decisions, able to avoid having a vast array of financial choices paralyze them into indecision.

The desire to continually learn is an important personal strength for financial analysts. As businesses, markets, and economies change and adapt, so, too, must analysts continually change and adapt. In addition to honing financial skills and strategies, they are required to stay on top of business, industry, and economic trends. The best analysts are constantly learning more, becoming better and better at what they do.

 

Reading and analyzing financial statements

Corporate financial analysts are one group that has to be able to read and truly understand a company’s financial statements – balance sheets, cash flow statements, income statements, and in the case of public companies, shareholders’ equity statements.

A good analyst not only understands the meaning and implications of each individual financial statement, but also sees the larger picture of how a company’s total financial position is reflected by the combination of assets, liabilities, cash flow, and income.

A company’s financial analysis department needs to have an equal, if not better, grasp of accounting journal entries and financial reconciliation statements than the accounting department does. Analysts have to understand the interrelated aspects of debits and credits, and be able to calculate and evaluate key financial ratios in order to determine where the company stands financially, and how to move forward from there.

To learn more, explore our financial analysis courses!

 

Project management skills

Financial analysts are also financial planners. Their purpose is to, based on research, data collection, and data analysis, advise a company’s management on the most financially efficient means of growing the company’s business and profits.

In putting together reports such as three-year and five-year financial projections, financial analysts are, in essence, constructing financial projects. Good financial analysts often bring to the table good project management skills, such as leadership, cost and time management, the ability to delegate, communication skills – and overall problem-solving skills.

Most financial analysts are well-schooled in using programs such as Microsoft Excel to create and analyze reports. Corporate financial analysis includes doing a great deal of data collection, data consolidation, and then generating numerous reports with lots of variables. A lot of the work of financial analysis involves examining key financial metrics, such as profit margins, sales volume, and inventory turnover, and then utilizing the analysis to create strategic financial planning to move the company forward to the next level of profitability.

 

Financial modeling work in FP&A

Analysts, manager, directors and other members of the FP&A team may perform significant financial modeling work, including creating, updating and managing the company’s corporate model in Excel.

The corporate model is used for consolidating the budgets for all departments, creating long term forecasts, and measuring actual results against the forecast.

The output of the financial model may be used in dashboards, investor relations presentations, board reporting, and ad-hoc analysis.

Below is an example of a financial model used in FP&A.

 

FP&A model

 

Learn more about financial modeling.

 

Education and certifications for corporate financial analysts

Aspiring corporate financial analysts can follow a number of educational paths to success in the industry. Degrees commonly held by analysts include accounting, business administration, statistics, and finance. The logical post-graduate course of study for financial analysts is an MBA degree.

CFI offers professional FP&A courses for along with continuing education training, all online. Having a certification from CFI helps with landing jobs, securing promotions, and being able to command higher compensation.

Some corporate financial analysts also seek professional certification in the arena of investing, obtaining credentials such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Financial Risk Manager (FRM).

Explore all CFI courses now to start advancing your career!

 

Best work experience for aspiring financial analysts

The best practical work experience outside of direct financial analysis work is anything that shows you’ve demonstrated the ability to help a company grow, especially in a cost-efficient manner. That might be anything from boosting sales by doing a good window display, to reducing overhead costs through a total revamping of a company’s inventory system.

Virtually any general business experience that highlights your ability to solve problems and increase profitability can be a major plus on your resume’ when applying for work as a corporate financial analyst.

Working at a bank or at a public accounting firm can be a great way to get into FP&A.

 

FP&A within a corporate structure (and small businesses)

In a small business, the position of the corporate financial analyst may not exist as a separate job title, but instead effectively be held by the owner, CEO, or company controller.

Larger companies have a complete corporate financial analysis department, usually headed by either a director of financial planning & analysis, or by the company’s Chief Financial Officer (CFO). Some companies have both positions, with the director of financial analysis reporting to the CFO.

In a large corporate financial analysis department, entry-level junior financial analysts work in small groups headed by a senior financial analyst. In the largest, multi-national firms, junior analysts are assigned to evaluating a single product line, or perhaps even a single product. For example, if you worked as a junior analyst at The Hershey Company (NYSE: HSY), you might be assigned to produce all the relevant reports and recommendations regarding just one candy bar.

 

CFO
or
Director
of FP&A
Major
Strategic Financial
Planning
 

$700k plus bonuses

 

Senior
Analyst

Project
Management;
Analysis
 

$100k plus bonuses

 

Junior
Analyst

Specific
Product(s), Department
or Project
Review
 

$60-70k (possible bonus)

 

It typically takes about three to five years to make the transition from junior to senior financial analyst. Along the way, you might have the opportunity to showcase your skill, getting assigned the title of “manager” in charge of a specific financial project, such as changing the way the company does inventory reports, or overseeing a substantial capital expenditure project.

 

Financial Analyst specialties

There are various specializations available for corporate financial analysts. Some financial analysts eventually focus on handling company investments, while others apply their skills exclusively to obtaining necessary funding for growth projects.

When looking at employment opportunities as a financial analyst, think about what sort of role and environment you’d be happiest and most comfortable in. Some individuals prefer a large corporation with clearly established career paths and the opportunity to gradually climb the ladder at a solidly established company. Others prefer the challenge of helping a smaller company navigate its way through a period of rapid growth, even if it requires wearing a lot more hats in terms of job responsibilities.

One significant change in the industry is the increased focus on financial regulatory matters. The Sarbanes-Oxley Act of 2002 in the United States, along with other new, related legislation (and similar laws in other countries) means that the financial personnel in companies have to devote a lot more time and attention to meeting fiduciary and other regulatory obligations, such as increased reporting requirements. If you’ve got a gift for dealing with government bureaucracies – specifically, regulators – that’s a valuable skill asset in today’s corporate world.

To learn more, explore our free introduction to corporate finance course.

 

Post FP&A career – where can you go as an FP&A Analyst?

There’s a fair amount of disagreement about existing exit opportunities within the corporate finance industry. Nonetheless, there are some frequently traveled paths.

A majority of corporate financial analysts remain in the industry but pursue new challenges (and higher salaries) by moving from one company to another.

Approximately 10% of corporate financial analysts eventually transition themselves into the fields of either investment banking or private equity. Another 10% move into some other area of corporate FP&A management, such as sales and marketing or human resources.

About 20% of financial analysts end up going into business for themselves, becoming private business consultants.

 

The bottom line – an important role with major opportunities

Careers:

Because the work of corporate financial analysis encompasses such a broad range of activities, and also because the work is so critically important to a company’s growth and basic financial survival, corporate financial planning & analysis FP&A is a career path that offers a wide variety of opportunities and higher than average compensation. With the proper skill set and a natural inclination for the work, you can carve out a very satisfying career for yourself as a corporate financial analyst.

Adding value at a corporation:

Corporate FP&A plays a major role in supporting decisions made by a company’s CEO, and CFO, and executive leadership team.  As such, the opportunity to add value in FP&A is huge and having a good time in place can lead to a huge potential boost in cash business planning including budgeting, forecasting, cash flow optimization, return on investment, capital structure, and ultimately the value of the entire business.

 

More FP&A resources

We hope this has been a helpful guide to understanding the role of FP&A at a corporation and how the team can add value for executive decision making.

To learn more and start advancing your career, explore these additional resources: