How are CFA And Financial Modeling Connected? Why Should You Study Both in the Same Course?

Chartered Financial Analyst (CFA) and Financial Modeling may seem like two diverse fields, but they are interrelated. Have you ever thought about how these two fields are related? And if they are related, then what’s the need to pursue them separately, or why don’t institutes merge these two courses and impart a collective educational program. 

These are some of the answers we will be addressing today. CFA professionals receive recognition and accreditation from a CFA-certified institute. On the other hand, financial modeling is a common-enough program available in several online and offline institutes. 

CFA and Financial Modeling are actively connected. More so that to pursue the CFA course, the students with financial modeling experience will have the upper hand. This is because where CFA teaches the theory, financial modeling takes care of the practical studies. 

What is a Chartered Financial Analyst?

CFA is a designation accredited by the globally recognized CFA Institute. For those who don’t know, CFA is the replacement of the Association for Investment Management and Research (AIMR). To become a CFA, the student must pass three exam levels covering different areas of study. These include;

  • Accounting
  • Economics
  • Ethics
  • Money management
  • Security analysis

That is not all. To become a CFA, the students also must have passed a bachelor’s degree and hold at least four years of work experience. Studying for the CFA certification is beneficial in terms of earning potential, scope, and growth. 

A CFA is recognized globally, and at present, there are a little more than 160,000 CFAs working professionally. These are spread in around 164 countries and provide services to a wide gamut of companies. 

Why Study CFA?

CFA brings a wide range of opportunities for the students. With the expansion of the financial and economic markets to include mobile technology, wallets, expansion of mutual funds, and inclusion of fintech, a CFA’s job will become even more pertinent to the current conditions. 

CFAs are hired in high-level positions of an organization, catering to the financial world. These include bands, economic analysis firms, etc., including the likes of Morgan Stanley, Bank of America, Wells Fargo, and HSBC, among others. 

In addition, the students pursuing the course give students a specialization they can use in the future to explore better career opportunities. 

CFA Exams

Educational background and professional experience are required to enroll in the CFA course. But to earn the certificate for the same, the students need to pass the three exam levels;

  1. Level 1

The first level of the CFA exam includes ten topics or areas. These are;

  • Economics
  • Fixed Income
  • Financial Reporting and Analysis
  • Corporate Finance
  • Equity Investments
  • Derivatives
  • Alternative Investments
  • Portfolio Management
  • Wealth Planning
  • Quantitative Methods
  • Ethical and Professional Standards

Students will have to attempt 240 MCQs and get six hours to give all the answers. The 10-year average passage rate of the CFA Level 1 exam is 44%. This tells us that it is not easy to pass Level 1, and only after passing it can you move to the next one. 

So, preparing well from the get-go is essential if you want to make it to the top of the CFA exam list. The Level 1 exam can be attempted twice a year, June and December. 

  1. Level 2

Where Level 1 exams can be taken twice a year, Level 2 can only be taken once in a year, in December. Here things get a little more specific and complicated as well. The students go through the tools required in investment purposes and concepts related to some specific contexts. 

Towards the end of this level, the students can build impeccable financial reporting and analysis skills. These skills are generally inspired by the International Financing Reporting Standards (IFRS). 

In the exam, you will get 21 item sets or case studies. Based on these, you will attempt six questions from each set. Passing this exam is also easier said than done. The last decade’s passing average for Level 2 is 45%.

  1. Level 3

The last leg of the CFA exam is Level 3, and the exam happens once a year, i.e., in June. The focus of this level is on understanding wealth planning and portfolio management. Both these concepts are crucial for anyone looking to build a career in the financial world. 

This level is also a sort of synthesis of the entire course. You will deal with the tools, concepts, and analytical methods learned in the previous levels. As for the exam format, the students will attempt 12-part essay-based questions and 10 MCQs. These are to be completed within six hours. The past 10-year score average for Level 3 is 52%. 

What is Financial Modeling?

Financial modeling is considered as one of the stepping stones to pursuing the CFA course and obtaining its certificate. Studying for CFA will be complicated if you are not aware of the technical concepts and understandings. As a result, financial modeling is recommended for students before students join the CFA course. 

As you will have to complete four years of professional work experience and complete your bachelor’s degree, you will have enough time to complete this course beforehand. 

In its essence, Financial Modeling is a process. A process that companies and professionals use to create a summary of their expenses and revenue. The data is bifurcated into several small but essential elements and presented in a spreadsheet format. 

The motive is to understand the current situation of the company and calculate the future move based on the financial data. Experts and company executives rely on accurate financial models to understand the impact and future company performance. 

Professionals and companies use Financial Models for;

  • Making Mergers and Acquisitions
  • To raise capital in the form of debt or equity
  • To understand how to grow the business organically
  • Diversifying or diverting assets
  • Creating budget forecasts for the future 
  • Working on capital allocation
  • Evaluating the business
  • Management Accounting

In essence, a financial model tells the company’s past story, present performance, and future prospects in numbers. A financial model is a vital decision-making tool. Hence it is essential to build a correct and precise financial model. 

That is why there is an entire course or sometimes an entire term in a course dedicated to financial modeling. With a financial model, experts can anticipate the impact of future events. For instance, how will the company grow if they buy ABC stocks, or how will the company grow by diverging assets, taking debt, etc.? 

Along the same lines, a financial model is also used to compare Company A’s performance with Company B’s. From identifying the cost of a new project to allocating the company resources for best performance, a financial model is essential to make almost every financial decision. 

Is It Important To Study Both Financial Modeling and CFA?

Yes, if you want to secure a well-paying job with an important position in the company make sure to complete both the courses. Again, we would like to reiterate the fact that you must complete the financial modeling course before CFA. In CFA, many concepts and components are related to financial modeling. More specifically, they are an upgrade to what you will learn in financial modeling. 

So, you must study financial modeling before CFA. It is possible to study both simultaneously, but it will only make things more complicated. Both the courses are self-sufficient and will take a lot of time. 

As we stated earlier, you can study financial modeling while gaining experience or studying. You can only join the CFA course after getting at least four years of working experience, so use the time you have to complete the financial modeling course. 

Both the courses are intertwined. While there is no condition that you have to have a certificate in financial modeling before joining the CFA course, it is almost customary to have one. 

Most importantly, Financial modeling will provide you with the practical knowledge to work in a real-world environment. While CFA also focuses on the same, the syllabus and course structure is slightly skewed towards the theoretical part. That’s why we recommend both. As it will give you a comprehensive understanding of the financial world and how to gain the right skills. 

Let’s Compare CFA and Financial Modeling

To compare both these courses, we will go through three components;

  1. Syllabus

In CFA, you will have to attempt and complete three exam levels;

  • Level 1
  • Level 2
  • Level 3

The subjects are the same in all three levels, but their representation and course material differ. So, the 10 subjects you will study in CFA are;

  • Economics
  • Fixed Income
  • Financial Reporting and Analysis
  • Corporate Finance
  • Equity Investments
  • Derivatives
  • Alternative Investments
  • Portfolio Management
  • Quantitative Methods
  • Ethical and Professional Standards

In Financial Modeling, the syllabus will be a detailed representation of creating and studying financial models. The syllabus includes;

  • Company Valuation
  • Comparable Company Analysis
  • Precedent Transaction Analysis
  • Discounted Cash Flow Analysis
  • Weighted Average Cost of Capital
  • Building Cash Flow Models
  • Making and Projecting Financial Statements

These are only some of the components. Other components might be added to the list, but that depends on the institute you choose. 

  1. Job Prospects
Jobs are CFA Jobs are Financial Modeling
Portfolio Manager Equity Research Analyst
Risk Analyst or Risk Manager Financial Planner or Analyst
Research Analyst Credit Analyst
Investment Banker Corporate Finance
Wealth Manager Project Finance
Accountant or Auditor Consultancy

After completing the CFA course, you will get jobs in a managerial position. As it’s evident from the list, you will be working from crucial positions in a company. You will have decision-making roles and help shape your client’s or company’s future. 

With financial modeling, the jobs you can secure are also imperative, but they are more specific and target a single domain. 

  1. Salary

In terms of salary, CFAs will earn a higher income than financial modeling experts. We can deduce from the prospective job roles associated with the CFA course. Managerial posts and representatives will attract a higher salary than associates. 

Can I get a Job after Completing either of the Courses?

Yes, you can easily secure a high-paying job after completing either the financial modeling course or CFA. Both fields of study are self-sufficient and can lead to a promising career. 

We have listed the potential roles you can work in after completing the financial modeling or CFA course. However, the combination of skills and experience you will gain after completing both courses brings unparalleled benefits. 

You can build financial models on an Excel spreadsheet, but to create an effective model, you will need theoretical expertise, which is taught in CFA. Similarly, you can learn extensively about creating financial decisions for a company. But to bring this information into practice, you need to create data models, which are taught in financial modeling. 

So, both the courses can bear fruit when completed independently. However, if you complete both and then build your career, it will be an amazing ride to growth. 

Conclusion

Financial modeling and Chartered Financial Analyst are two different fields that are connected by their impact. The impact being how they can help determine the future course of your career and help you obtain a high-paying and important job. You can obtain a financial modeling certificate from any eligible institute, but for the CFA, you have to take the exams provided by the CFA institute. 

At IMS ProSchool, you can prepare for the CFA exam. We have in-house training modules and experts to help you ace every level of the exam. Similarly, we also provide courses in financial modeling. 

Your resume will shine like a bright star when it mentions both fields. You will find yourself desired in several international and globally recognized companies. Not to mention that your knowledge pool and skill set will bring several opportunities to your doorstep.