How to Use Chat GPT for Financial Analysis

The world of Financial Analysis is changing fast. New technologies such as Chat GPT promise to disrupt the way Analysts perform their job, while enabling them to also complete complex tasks that they may not have been able to previously.

nContinue reading to learn more about this exciting new technology and how to leverage in your job to stay ahead of the curve.

What is Chat GPT?

Chat GPT (Generative Pre-trained Transformer) is a new language model that utilizes advanced machine learning and artificial intelligence to answer questions from people in the same manner that another person would answer it.

The software has been trained on massive datasets and can answer many complex questions with surprising detail. The two key differentiators of this technology vs prior chat bots is that the answers have Contextual Awareness and it’s capable of Multi-Turn Conversations.

This means that there is some understanding of what a person is asking, and you can ask follow-up questions to have it provide greater detail, or to clarify and summarize information.

What is Financial Analysis and Why is it Important?

Financial Analysis is traditionally performed by a Financial Analyst. They review financial reports, and financial statements such as the income statement, balance sheet, and cash flow statement to evaluate a company’s profitability, and use the information to forecast their long-term growth potential, or to assign a valuation.

Financial Analysis is important as the data generated is used to inform investment decisions or assess liquidity or solvency conditions that are of interest to banks and other lenders.

How to Use Chat GPT for 3 types of Financial Analysis

Unfortunately, in its current form you are unable to load an entire 10-K into Chat GPT for analysis. It’s like that this feature will exist in some form of software in the future, but it is not available at the time of writing. What Chat GPT can do is help an Analyst complete their daily job duties faster and with more context.

How to Use Chat GPT for Horizontal Analysis

In an ideal world analysts would only have to cover industries that they are already familiar with. There is a lot of contextual information that helps an analyst determine if the numbers that they are observing are telling the same story that management is. As a quick primer, you can use Chat GPT to summarize recent company history. The tool is only trained with data up until 2021.

Chat GPT Describing the Financial History of JC Penny

However, Microsoft recently invested over $10 Billion into OpenAI, the developers behind Chat GPT. At the direction of Satya Nadella, Microsoft has been aggressively integrating Chat GPT into most of their software. Microsoft’s Bing Search has up to date information that can be summarized and aggregated. It can even cite specific research sources.

Bing NLP Chat Describing the Recent History of JC Penny Corporation

How to Use Chat GPT for Vertical Analysis

Most analysts are going to be familiar with the primary lines of an income statement or balance sheet. As accountants for publicly traded companies get more creative, it can be difficult to keep up. As an example, we asked Chat GPT to explain the accounting treatment for gains and losses arising from a cash flow hedge, the exact wording was copied and paste from a publicly traded firms 10-k.

Chat GPT can also be an excellent resource to summarize and re-word the notes or disclosure sections of a 10-K or 10-Q.

Chat GPT Describing Accounting Treatment for Cash Flow Hedges

How to Use Chat GPT for Financial Ratio Analysis

Financial ratios are the bread and butter of financial analysis. The sheer volume of ratios that people have come up with over the years can be daunting to keep in your head. From a Current Ratio, Quick Ratio, Acid Test Ratio, Defensive Interval Ratio, to various cals for CCC, DSO, DIO, DPO, DSI, and various burn rates it can tough to keep track of them all.

Chat GPT is useful as a reference for financial ratio calculations. It quickly returns a description of a ratio that you are interested in and describes in detail how to calculate it. You can also use Chat GPT for Financial Valuation Ratios like the Sortino or Sharpe Ratio, and for reminding you of how-to setup formulas that are less common such as the Black Scholls formula for options valuation.

Chat GPT for Financial Ratio Analysis and Black Scholls Formula

As a test, we tried to feed specific financial information into Chat GPT to have it calculate the ratios for us, which it can do in limited instances. It seems to get confused when inputting tabular text and numbers into the chat prompt unless you are incredibly specific.

It may be quicker to use Chat GPT to setup the formulas as part of a more extensive Excel template.

Using Chat GPT as an Excel Formula Reference Guide

Chat GPT can easily give you Excel Formulas and does a much better job explaining them than the prompt or formula wizard will do. The following example is Chat GPT explaining the NPV and IRR formulas. The added benefit is that you can ask follow-up questions to any answer that Chat GPT gives you. For this example, we could follow up and ask what the difference is between the two formulas or have it compared IRR to ROI along with example formulas of how to calculate each one.

Our in-depth guide explores many creative ways to utilize Chat GPT with the world’s most widely used analytical tool. How to Use Chat GPT with Excel (

Chat GPT as an Excel Reference for NPV and IRR

Using Chat GPT for Advanced Analytical Techniques

Whether you’re working on a business valuation or putting information together to inform business decisions, the amount of data that you work with on a daily basis continues to grow. While a lot of analysts spend a majority of their time in Excel, the world is changing, and Analysts will need to adapt.

Companies are turning to tools such as Power BI, or even going so far as to require new analysts to have an understanding of the Python programming language. Chat GPT has been trained on large datasets with advanced knowledge of computer programming. So, if you don’t end up using Python all of the time, you can use it as a quick reference guide or even have it generate portions of code on your behalf.

While Chat GPT won’t be able to analyze financial data on your behalf, it can help you utilize the latest tools. It can even explain the differences between various time series models or forecast methods.

Using Chat GPT to Simplify Forecasting Techniques

As financial statement analysis gets more advanced, the analytical techniques evolve along with it. Even though a lot of different software includes Auto ML features for things like time series forecasting, it can be a difficult to keep track of the nuanced differences between them.

Chat GPT can go into as much or as little detail as you want when explaining forecasting techniques. Simply ask it to explain a topic is you would to a child, and it will simplify the math to a very basic level. It’s a wonderful reference tool.

Chat GPT Explaining ARMIA vs Vector Autoregression for Children

Identify and Summarize Company Strategies With AI

The artificial intelligence and machine learning models behind Chat GPT come to life with near real-time data in Bing Chat. In this example, we asked Bing what the company strategies are in 2023 for Alteryx (AYX). Alteryx is a software company that produces widely used analytics software.

Chat GPT is limited as a research tool due to its lack of training on recent data. Bing excels at these brief summaries and includes sources which in this case include the Alteryx Investor website.

It’s been rumored that OpenAI is working on GPT-4, a more recent version of their language model than the currently available GPT-3.5. It’s believed that GPT-4 currently powers Bing chat.

One drawback of Bing is that the answers provided lack the level of depth and detail that Chat GPT is capable of producing, so we hope that the two models merge in the near future to give the best of both worlds.

Bing Chat Describing Recent Alteryx Investor Strategies

What are the Limitations of Chat GPT for Analysis?

As a natural language processing model, Chat GPT does not work well directly with numbers. It’s incapable of performing financial statement analysis or technical analysis. You can feed it a limited amount of information for it to ingest and respond to questions. This leaves it limited to being a better support tool than one that is going to do all of the work for you.

Chat GPT was also only trained on data up until 2021. This makes it an okay resource for giving high level industry economic characteristics and overview information, but tools such as natural language powered Bing are better at summarizing current events but may not give as much detail as you would like.

The tool is a great starting point for conducting financial analysis and is likely to save people a lot of time but won’t fully be replacing the Financial Analyst role quite yet.

What is the Future of the Financial Analysis Profession?

With more advanced AI tools becoming available such as Chat GPT and Bing Chat that provides summary and reference data that could otherwise take hours to consolidate, it’s worth asking the question of what the future of the industry looks like.

From a pure numbers standpoint, the Bureau of Labor and Statistics (BLS) shows that the future is bright. Significant job growth is forecast for the career field over the next several years at 9.0% through 2031.

We anticipate that Chat GPT and similar technologies pose a significant threat for these numbers to become a reality. As tools become more complicated, yet easier to use with the help of Chat GPT people will be able to do more with less. Thus requiring less people in to complete the tasks required by their business or department.

The silver lining is that Financial Analysts are above average in their skillsets. With advanced knowledge of Accounting, Financial Reporting, and Fundamental Analysis skills, they are well positioned to adapt to a changing job market. These are skillsets that are vital for any company’s long-term success.

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