Who is a Valuation analyst?

In simple terms, a valuation analyst analyses an asset, a business, equity, real estate, commodity, fixed income security, etc., and then estimates an approximate value. They will use multiple methods to estimate the valuation since one approach wouldn’t work for every type of asset.

Let us look at one of the job profiles for a Valuation Analyst. Key responsibilities are listed in the below snapshot.

As we note, valuation analysts work on various assignments, including financial analysis of companies,  Discounted Cash Flow Analysis, Financial Modeling of companiesFinancial Modeling Of CompaniesFinancial modeling refers to the use of excel-based models to reflect a company’s projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.read more, reviewing debt and equity securities, valuation of Intellectual property, business valuations, intangible asset valuations, option valuations across multiple industries.

However, while performing the valuation analysis, she would chunk down the inherent aspects of each asset and look at all the factors.

For example, if an analyst looks at the valuation of a business, she may use theDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company’s future performance.read more discounted cash flowDiscounted Cash FlowDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company’s future performance.read more method. Under that method, she will look at all the future cash flows the business can generate and then turn them into present values to see the actual value of the business.

They look at various factors before they ever value a company or an asset. These factors are –

  • Profit MarginsProfit MarginsProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. read moreSales/RevenuesCapital ExpendituresCapital ExpendituresCapex or Capital Expenditure is the expense of the company’s total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read moreOptions for financingTax RatesThe rate of Discount that would be used to find out the present valuePresent ValuePresent Value (PV) is the today’s value of money you expect to get from future income. It is computed as the sum of future investment returns discounted at a certain rate of return expectation.read more, etc.;

Let’s now look at the qualifications.

Required skills of a Valuation Analyst

Let us look at the required qualification of a valuation analyst.

  • The basic qualification of becoming a valuation analyst is to pursue your graduation in finance or accounting. Even if this is the basic qualification required to pursue a career in valuation analysis, you need to be pretty advanced in financial modeling and valuation. MBA is also an added advantage.A good idea is to go for CFA while joining a company as a Junior Associate since you can pursue CFA Pursue CFA The Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. read more while doing a job (actually, to pass CFA, you need to have four years of full-time employment in the financial field).Having a CFA degree and an experience of 4-5 years would turn out to be a great advantage for you.Excellent skills with applications like Microsoft Word and MS Excel.

Valuation analyst career graph

If you want to be at the top level in your valuation analyst career, here is a snapshot –

  • After completing your bachelor’s degree in accounting or finance, you will join a company as a junior associate of valuation. Before joining a company, it’s a great idea to do an internship with a reputable company. It will increase your chances of full-time employment with the same or similar company.Then after a few years of learning and gaining the expertise, you will become a senior associate. At this stage, you should start pursuing your CFA. While you finish your CFA Level 1, CFA Level 2, andThe CFA level 3 exam is the CFA Institute’s final examination. The first two levels cover fundamental financial knowledge, investment valuation comprehension, and applications, while the third level examines portfolio management and wealth planning.read more CFA Level 3CFA Level 3The CFA level 3 exam is the CFA Institute’s final examination. The first two levels cover fundamental financial knowledge, investment valuation comprehension, and applications, while the third level examines portfolio management and wealth planning.read more, you would be promoted to the position of Manager in Valuation or Consulting.At this stage, you would have two options – the first option is to continue in the same profile or join a public accounting firm as a partner or a similar position. If you choose the latter, this is how you would exit your career.If you decide to continue in the same valuation analyst career profile, you will become the vice president of the consulting firm after a few years as a manager. From here, most of the candidates change their profiles. You would have three options at this juncture. You can join the corporate sector as a CEO or CFO. You would have the option to join a company in the financial sectorFinancial SectorThe financial sector refers to businesses, firms, banks, and institutions providing financial services and supporting the economy. It encompasses several industries, including banking and investment, consumer finance, mortgage, money markets, real estate, insurance, retail, etc.read more and get a managing director position or sort. The last option is you can choose to start your venture and become an entrepreneur.

Valuation Analyst Salary

Many candidates choose this profile because of their great career growth and decent compensation.

  • As a junior or senior associate, you can expect to earn around $60,000 to $90,000 per annum (the amount is inclusive of the bonus).As a manager, you would earn around $90,000 to $150,000 per annum (the amount is inclusive of the bonus).As a vice president, your earning (including bonus) would be around $150,000 to $300,000 per annum.If you choose to continue on your path, you will become a company partner, and you will pay around $300,000 to $1 million per annum (including bonus).

Conclusion

The valuation analyst career profile is 80% science and 20% art. You would be involved with many financial modeling, valuation techniques, etc. At the same time, you need to make certain assumptions to conclude.

That’s why you need to constantly learn, understand the market, update yourself about what’s going on, and apply what you learn. Overall, the valuation analyst career is a great profile and will be suitable for those who love financial modeling.

Video on Valuation Analyst

This article is a guide to who is a Valuation Analyst. Here we discuss the roles of a valuation analyst, career profile skills required, and salary expectations. You may learn more about Corporate Finance from the below articles –

  • Valuation CareersTop 3 Methods of Inventory ValuationInvestment Analyst – Career PathDifferences – CEO vs. Managing Director