Unlocking Financial Data

Chapter 1. Introduction

In a nutshell, the role of any financial analyst is to develop a view on how much a security—such as a bond, loan, equity, or even a securitized portfolio of commercial real-estate loans—is worth. In other words, an analyst must determine the price at which he would buy or sell a security. There isn’t a uniform method, model, or formula that analysts use to determine worth, because every investment is different. However, the valuation process generally consists of two important steps:

• An analyst needs to know each potential investment inside and out, identifying the different nuanced ways and probabilities of losing or making money.

• The resulting risk-adjusted return is measured against other potential investments to determine if the given investment is cheap, rich, or fair valued.

Valuations aren’t simply performed once per security; investments must be continuously valued. In today’s global economy, the risks to an investment are constantly changing, affected by changing commodity prices, government regulations, natural disasters, consumer sentiment, and countless other variables. Likewise, even if these variables don’t affect a security directly, they can make an investment look cheap or rich relative to other securities that were affected.

The process for valuing a security is complicated, time consuming, and generally requires analyzing a lot of financial data. Much of the financial data is provided by the issuing company or a bank that is marketing ...