Investment banking vs corporate finance: what’s the difference?


Investment banking vs corporate finance: an overview

A generally accepted distinction between corporate finance roles and investment banking roles is that a corporate finance professional takes care of day-to-day financial operations and manages short and long business goals. long term, while an investment banker focuses on raising capital from the public. markets. An investment banker also manages private placements of equity and debt capital and conducts merger and acquisition (M&A) transactions.

It could also be said that the roles of investment banking are responsible for the growth of a business from a capital perspective, while the corporate finance industry is used to manage a business’s capital and operations. strategic decisions related to finance.

Key points to remember

  • Investment banking grows a business, while corporate finance runs a business.
  • A corporate finance professional takes care of day-to-day financial operations and short- and long-term business goals, while an investment banker focuses on raising capital.
  • The education and experience required to become an investment banker are higher than for most corporate finance positions.

investment bank

Investment banks raise capital for other companies through securities transactions in the debt and equity markets. Investment banks also help coordinate and execute mergers and acquisitions (M&A). They provide advisory services to large clients and perform complex financial analysis.

Investment banking is considered to be one of the main areas of the financial industry. There are two standard paths to a career in investment banking: attending a reputable undergraduate university and entering the field as an analyst, or going to business school, earning a master’s degree in business administration (MBA). ) and break through as an associate.

In their undergraduate studies, those interested in becoming investment bankers should focus on degrees in finance, economics, banking, or investment analysis. Most people take internships or take low-level positions at large banks to gain experience, and many work as analysts before getting their MBA.

The big investment banks, especially in New York and London, focus their recruiting efforts on the top performing applicants from Ivy League schools, although it is not uncommon for exceptionally analytical applicants to be graduates in difficult subjects such as biopharmaceuticals or other medical fields to find their way into the industry.

According to data from Wall Street Oasis, even junior investment banking analysts can expect compensation of $ 70,000 to $ 150,000 per year when signing bonuses and performance-based bonuses are taken. into account.

business Finance

Corporate finance is a catch-all designation for any business division that manages the financial activities of a business. In some cases, it can be difficult to differentiate between corporate finance roles and investment banking roles. For example, an investment bank may have a corporate finance division.

There are many viable career paths that can be found in corporate finance, as there are many different types of jobs in the field. Individuals can find their niches as accountants, advisers, account managers, analysts, treasurers, business analysts or any number of other jobs. There are a few skills needed, such as an understanding of corporate finance and effective communication skills.

A financial analyst, technically involved in investment banking, could expect a median salary of $ 85,660 in 2018, according to the Bureau of Labor Statistics (BLS). Meanwhile, a CFO and other top professionals in corporate finance enjoyed a median salary of $ 184,460 in 2019, according to the BLS.

According to the BLS, financial analyst positions and executive positions in corporate finance are expected to grow at a rate of 6% between 2018 and 2028.

Special considerations

Many choose to quit their investment banking career after a few years due to burnout. Investment banking transactions tend to be executed by small teams (three to seven is the norm) with an analyst, one or two partners, a vice president and a senior general manager.

The workflow is uphill and the lower down the rungs are responsible for an exceptional amount of effort. Stories abound of investment analysts and associates working 80 to 100 hours a week. An 80-hour week is equivalent to five 16-hour days or seven 11.5-hour days.

Those debating a career in investment banking versus a career in corporate finance have two primary considerations: workload and salary. The prestige and pay of investment banking jobs appeal to a lot of people, so the intense working hours are a small hurdle to overcome.

Corporate finance jobs aren’t easy to get, but they are more plentiful and less competitive than investment banking jobs. Corporate finance continues to provide a great career in business analysis and corporate culture for those who enjoy their weekends, vacations, and evenings.

When considering the future of these two professions, it is important to keep in mind that these two professions are likely to change significantly, due to artificial intelligence, data science and power. computer science. There are many tasks that can be performed by algorithms, and only high-level types of abstraction and communication will remain the privilege of human investment bankers and corporate finance professionals.


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