ChatGPT For Financial Analysts: Advantages And Some Limitations

ChatGPT for financial analysis is being used extensively to enable professionals to complete complex tasks easily. The Artificial Intelligence-based chatbot is trained to handle massive amounts of data and answer mathematical queries.

In this article, we will provide examples of how you can use ChatGPT for financial analysis. Here, along with discussing the advantages of ChatGPT for financial analysis, we will also discuss its limitations and challenges.

Advantages of ChatGPT for Financial Analysis

Let's start with the advantages of ChatGPT for financial analysis.

Investment Analysis and Prediction

With the rising standards of living and increasing incomes, many people in India look for good investment options. There has been an average of 30% growth in the incomes of Indians. It has resulted in higher financial awareness at least in urban centres of the country.

Several Indians are moving away from keeping money in the lockers of their houses. They are investing in stock markets and other financial assets. For this reason, they seek the help of professionals in the financial industry to make informed decisions about investment. 

The matter of making investment decisions and predicting the condition of the stock market involves keeping yourself updated with the changes in the market. It helps professional analysts to provide consultation to their clients. 

They can use ChatGPT for financial analysis to study the mood of the stock market and other variables and suggest a good investment plan to their clients. 

ChatGPT, which operates on a large language model uses sentiment analysis of financial news headlines to provide information on stock prices and their value. In this way, financial analysts do not have to consume all the information that is floating in the market. Rather, they get a well-organized summary of stock market predictions.

Along with this, it also uses historical data to find patterns in the behavior of investors and companies. It helps to offer an analytical view of the market and investment conditions in the nearby future. 

Compliance and Risk Management

A major part of working as a professional in the finance industry is to analyze several legal and regulatory documents. Financial analysts have to ensure that their clients do not get into any legal or financial trouble due to non-compliance with regulations.

Here is an example of compliance guidelines a skincare brand has to follow according to Indian law:

Risk management is another reason why financial analysts have to keep a keen eye on regulatory documents. If they do not inform their clients about the possible risks they can fall into, there could be huge losses. For this reason, financial analysts have to assess potential risks and provide solutions to mitigate them. 

They can use ChatGPT in a very interesting way here. Let's read how this essential tool for financial analysis can be used for assisting finance professionals in risk management and compliance:

• ChatGPT for financial analysis can be used for framing compliance policies by providing the required information and a set of guidelines. The Natural Language Processing models of the chatbot can generate a well-structured document that meets the necessary guidelines.
• ChatGPT can also analyze a policy document and see whether it meets the guidelines. In other words, it can provide feedback on whether the document meets the official framework or not. 
• ChatGPT can provide data on the policies which are to be framed by analysts. For instance, companies need to adhere to comply with the policies of social responsibility and sustainability. Here, ChatGPT can collect data from different online sources and allow professionals to understand what points and clauses they should add to the policy.
• ChatGPT can assist in compliance-related communications. It includes regulatory filing, drafting emails and messages, and improving fraud detection.  

Chat GPT for Horizontal Analysis

As a financial analyst, your job requires you to analyze a company's performance over a period of time. Professionals in the field conduct a horizontal analysis in which they see how the company has been performing. They compare the performance of the past years with the current year a report to the company. 

The process of preparing a horizontal report requires examining loads of data. This means there are various points where they can go wrong. However, using an AI-based technology can be of great help here.

Professionals just need to input data in ChatGPT and the chatbot will conduct a comparative analysis of the performance of the company. 

Chat GPT for Vertical Analysis

When companies invest huge amounts of money into a business, they must know how much they are earning from it. The financial analysts of a company help the company to prepare and examine the financial statements of the company.

Financial analysts can use ChatGPT to ask questions on how they can calculate the gains and losses made by the company in the current financial year. 

For instance, you can ask ChatGPT to explain the accounting treatment for gains and losses arising from a cash flow hedge. It will provide the following response:

The financial ratio analysis of a company offers crucial insights into the operations of the company. An analyst examines the profitability, liquidity, solvency, and operational efficiency of the company. It is done through the analysis of balance sheets, income statements, cash flow statements, etc. The financial ratio analysis also helps the companies to see how they are performing in comparison to other companies. 

Yet, analysts have to conduct calculations of huge everyday expenses. Additionally, analysts have to keep a record of several other things while conducting the financial ratio analysis, such as acid test ratio, quick ratio, defensive interval ratio, etc.

Here, you can use ChatGPT to get a quick description of the terms used for calculating financial ratio analysis. The AI-powered chatbot can also allow analysts to understand how to calculate different variables.

Chat GPT as an Excel Formula Reference Guide

Excel is perhaps the most often used application by financial analysts. They have to maintain several Excel sheets which carry tons of data. Now, of course, experienced financial analysts have Excel formulas at the end of their fingertips. However, there are times when you need external help. 

ChatGPT can be used by financial analysts to get help with formulas. For instance, ChatGPT can explain to you how to use NPV and IRR formulas in Excel. Additionally, you can ask follow-up questions. The chatbot uses its machine learning models of NLP technology to produce human-like responses which assists in a better understanding of the topic.

You can use a simple ChatGPT prompt and the chatbot will act as a personalized Excel formula reference guide for you:

"provide the Excel formula for calculating NLP and IRR"

Miscellaneous Functions of ChatGPT for Financial Analysis

There are some other functions of ChatGPT for financial analysis which can help professionals in the field. Let's read about some of them:

• Collecting and cleaning data: ChatGPT collects data from various sources. It can also sort it to offer manageable data that can be analyzed easily. Additionally, it can also provide an analysis of this data. 
• Monitor competitive landscape: There is tough competition among companies in the market to stay on the top. For this, each company should know how the products or services of the competitors are performing. ChatGPT provides financial market data of the competitors with a simple prompt. 
• Automating routine tasks: Professionals in the field of financial analysis can use ChatGPT to automate the tasks they do on an everyday basis. It includes data entry, report generation, and preparing automated responses to emails. 

These advantages have the following implications:

• Saves time: Automating routine tasks saves lots of time which can be utilized for important tasks. 
• Better productivity: Financial analysts can increase their productivity by analyzing complex and tedious data within seconds. They can finish weeks of work within a day.
• Improved insights: Financial analysts can use ChatGPT to examine data from various sources. They can also conduct a comparative analysis of the data and find new perspectives. 
• Competitive advantage: Using ChatGPT to conduct data-driven market research and predictions can offer a competitive advantage.

Limitations of ChatGPT for Financial Analysis

There are some limitations of ChatGPT for financial analysis. Let's have a look.

• The language model may not be accurate as it is still being tested for various features.
• The chatbot may not collect information from reliable sources. Hence, the information may be outdated, incorrect, or biased.
• There can be model bias in such technologies. They could be using biased statistical data they were trained on. It offers a stereotypical and biased output. 
• The user has to input data very carefully. The chatbot is not good at handling unstructured data. It fails to understand unorganized data and gives a wrong analysis.
• Limited data repository. Its data collection is limited to the pre-2021 period. Hence, it cannot support data analysis of market forces that are dynamic and volatile.

Conclusion

This article provided a comprehensive view of how you can ChatGPT for financial analysis. If you are a professional working in the field of financial analysis, you can benefit greatly from this AI-based technology. 

India is a country where there are more than 700 million users of e-banking. We have one of the highest numbers of startups, with Fintech startups accounting for a market share of almost USD 1.5 billion. It means there are plenty of opportunities for professionals to use ChatGPT financial analysis and assist the digital financial growth of the country.

Hope you like this article. If you are interested to read more about ChatGPT, you should definitely read other articles from Unstop's ChatGPT series. These articles are designed to provide you with valuable insights into how you can leverage this new technological invention and grab endless job opportunities for growth available out there.

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