Investment Banking vs Corporate Finance: What’s the Difference?

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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 handles day-to-day financial operations and manages short- and long-term business goals, while an investment banker focuses on raising capital from the public. markets. An investment banker also manages private equity and debt capital placements and conducts merger and acquisition (M&A) transactions.

It could also be said that investment banking roles are responsible for developing a business from a capital perspective, while the corporate finance sector is employed to manage a company’s capital and related strategic decisions. to financing.

Key points to remember

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

investment bank

Investment banks raise capital for other businesses through corporate actions 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 one of the main areas of the financial industry. There are two standard routes to a career in investment banking: attend a reputable undergraduate university and enter the field as an analyst, or go to business school, earn a Master of Business Administration (MBA ) and drill as a partner. .

In their undergraduate studies, those interested in becoming investment bankers should focus on degrees in finance, economics, banking, or investment analysis. Most people take on internships or take junior positions at big banks to gain experience, and many work as analysts before earning their MBAs.

Major investment banks, particularly in New York and London, focus their recruiting efforts on top performing prospects from Ivy League schools – although it is not uncommon for exceptionally analytical prospects with degrees in difficult subjects such as biopharmaceuticals or other medical fields to make their way in the industry.

Even junior investment banking analysts can expect compensation of $70,000 to $150,000 a year when signing bonuses and performance-based bonuses are factored in, according to Wall Street Oasis data. .

business Finance

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

Many viable career paths can be found in corporate finance, as there are many different types of jobs in the field. Individuals may find their niches as accountants, advisors, account managers, analysts, treasurers, business analysts or any other job. There are a few skills needed, such as an understanding of business 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 corporate finance leadership positions are expected to grow at a rate of 6% between 2018 and 2028.

Special Considerations

Many choose to leave investment banking careers after a few years due to burnout. Investment banking operations tend to be executed by small teams – three to seven is the norm – with an analyst, one or two associates, a vice president and a senior managing director.

The workflow is bottom-up and those lowest on 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 who debate a career in investment banking versus a career in corporate finance have two overriding considerations: workload and salary. The prestige and pay of jobs in investment banking appeal to many, so the intense working hours are a small hurdle to jump.

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

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

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