How Do Financial Analysts Think and Make Decisions?

By David Brown

When I think about financial analysis, I don’t just think about numbers in a spreadsheet, decision-making, strategy, and the frameworks that guide the future of businesses.

In this webinar, I shared my thought process as a financial analyst and financial modeler, drawing from my years of experience, working with the World Bank, and training thousands of professionals globally.

Who is a Financial Analyst?

At its core, a financial analyst is someone who interprets numbers to help businesses and decision-makers make better financial choices. Analysts don’t just record history, that’s accounting’s job, we look forward.

We build models that help organizations simulate outcomes, prepare for uncertainties, and uncover opportunities hidden in the data. These models turn raw numbers into financial stories that influence strategy.

Financial analysts are modelers. We build all kinds of models:

• Budget models
• Project finance models
• Payroll models
• Valuation models

Anything that requires structured input, logic, and clear output falls under our domain.

The Six Ways I Think as a Financial Analyst

Over the years, I’ve developed a framework for how I think about financial analysis. These six principles guide my approach whenever I’m building or reviewing a model.

Think Like an Architect - Before I open Excel, I visualize the business and its moving parts. Architects don’t build immediately; they sketch designs first. Likewise, as a modeler, I step back and ask: What are the key questions this model must answer?

For example, sitting in a restaurant, I often estimate occupancy rates, staff levels, and potential revenues. Even without a spreadsheet, I can sense whether the business model is sustainable.

Keep It Simple - Complex doesn’t always mean better. A strong model should be simple enough to understand yet robust enough to test different scenarios.

When teaching time value of money, for instance, I reduce it to just five types of cash flows. By structuring assumptions and calculations clearly, anyone can trace how numbers connect and adjust inputs to test outcomes.

Be Skeptical: Every Story Has Two Sides - Never take financial statements at face value. There are always at least two perspectives to every financial story, they are assets vs. liabilities, government vs. corporations, short-term vs. long-term.

I often use a simple five-box method:

• Current assets
• Fixed assets
• Owner’s funds
• Long-term loans
• Current liabilities

This stripped-down approach often reveals the real financial story.

Visualize Before You Build - I always visualize industries and business models before opening Excel.

Take the AI boom as an example. While everyone is excited about AI apps, the real winners right now are companies like NVIDIA, the chipmaker producing GPUs that power AI. Thinking visually helps me identify who’s truly captures value before modelling it.

Identify Risk and Uncertainty - No model predicts the future perfectly. Some line items carry far more uncertainty than others.

In an energy model, for example, oil prices are a massive uncertainty. Scenario testing and Monte Carlo simulations help stress-test assumptions.

I keep models simple but always add sensitivity analysis. This shows me which risks truly matter.

Understand Finance Beyond Accounting - Accounting looks backward; finance looks forward. Financial analysts focus on projections, valuations, and decision-making under uncertainty.

Whether corporate finance (backed by an existing balance sheet) or project finance (where cash flows must fund themselves), the key is assessing returns on invested capital and ensuring long-term sustainability.

Types of Financial Models

I group financial models into three broad categories:

• Deterministic Models – Classic models with defined inputs and outputs.
• Stochastic Models – Models that incorporate uncertainty, often using simulations like Monte Carlo.
• Back-of-the-Envelope Models – Quick, intuitive calculations to test feasibility.

Each type has its place, and the best analysts know when to use which.

Why Planning Matters

Ultimately, modelling is about telling a story with numbers. It’s not enough to crunch figures, you must link them to strategy. Every decision in a company is financial, and models provide the clarity to make those decisions with confidence.

Accreditation and structured training, such as through the Financial Modelling Academy, provide analysts with both the skills and the credibility to stand out in the global marketplace.

Key Insights & Takeaways

• Financial analysts are modelers: They build tools that help decision-makers move beyond intuition and into data-driven strategy.
• Six guiding principles of financial thinking: Think like an architect, keep it simple, be skeptical, visualize before building, identify risks, and focus on the future.
• Types of financial models: Deterministic (defined inputs/outputs), stochastic (simulation-based, e.g., Monte Carlo), and back-of-the-envelope (quick feasibility checks).
• Planning and strategy matter more than numbers alone: Models tell the story of a business and guide decisions.
• Accreditation boosts credibility: Structured training and recognized certifications help analysts stand out globally.

🚀 Ready to take your financial analysis skills to the next level?

 Join the Financial Modeling Academy (FMA) Next Cohort. Registration closes on 30th September 2025

Don’t miss the chance to gain globally recognized skills that will set you apart in finance.

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