Corporate Finance vs Investment Banking

Corporate finance refers to the financial aspect of a company. It involves decision-making relating to funding, investment sources like debt or equity, and analysis of financial projects overall in terms of profitability and costs. In contrast, investment banking refers to financing activities related to raising finance in the company through stock trading or others, and it is a subpart of corporate financing.

Corporate finance and investment banking are among finance students' most promising career choices. These areas offer highly competitive job roles and excellent prospects to grow as a professional. Here, we would attempt to study the nature of work, compensation, work-life balance, and other aspects and compare these two careers. For the sake of clarity, we would first need to define corporate finance and investment banking broadly.

Corporate Finance is defined as the finance structure of the corporation that deals with various elements in the entity, such as management actions and funding resources. It guides to take the necessary steps to increase the firm's value with the help of appropriate surveys and to assign resources of finance.

The main objective of corporate finance is to increase the corporation's value to increase the value of shareholders. Corporate Finance enhances mainly three sectors of the entity: capital budgeting, capital structure, and working capital management.

Investment banking is a separate division of banking, which provides services for individuals and organizations to raise funds through securities. Investment bankers help securities issuers go public and may act as mediators between the public, organizations, and companies that issue securities to the public.

It shows how to raise funds from the companies which issue the securities by the individuals and other Entities from all over the world. Investment banking has dealt with various sectors, underwriting and acting as mediator, etc. There are few notable investment banking sectors recognized globally, such as JP Morgan Chase, Goldman Sachs, etc.

Corporate Finance

• Corporate finance is concerned with the financial activities of a company. Any decisions for investments or for raising capital fall within its domain.
• The fundamental objective is to maximize the value of a business by making strategic financial decisions which might include allocation of resources, identifying avenues for reinvesting profits or raising capital by issuing equity or debt securities.
• It must be understood that corporate finance is much broader in scope, and investment banking can be defined as more of a sub-area of corporate finance.

Investment Banking

• It deals with major financing activities, including the issue of securities, acquiring other businesses (M&A activity), and similar functionalities aimed at raising capital for a business.
• Big corporations typically hire investment bankers to facilitate these significant fundraising activities, which demand a specialized approach and expert knowledge of the professionals.
• It is why, despite technically being a sub-domain of corporate finance, investment banking qualified as a distinct field in its own right and recognized as investment bankers are recognized as heavyweights for the kind of roles they carry out.

Corporate Finance

• Undergraduates in economics, business, and finance could plan for a career in corporate finance.
• Since most corporate finance job roles require expert accounting knowledge, those who have completed an accounting course could be at a distinct advantage.
• However, corporate finance is broader in scope than most other work areas in finance, and it follows logically that depending on the nature of work for a specific position, candidates might need to possess varying skill sets.
• For instance, Earning a CPA (Chartered Public Accountant) designation could work best for accounting-oriented roles. Those aiming for financial analyst role could benefit more with CFA (Chartered Financial Analyst) designation.
• It must be remembered that corporate finance is all about making critical financial decisions with a direct role in building value for a business.
• Apart from accounting, candidates should possess excellent knowledge of finance, investments, and corporate theory, among other things, to succeed as a professional.

Skills needed:

• Good accounting skills and excellent analytical abilities
• Broad-based knowledge of corporate finance and excellent communication abilities
• Expert knowledge of financial analysis or other concepts depending on relevant job roles

Investment Banking

• Undergraduates in finance, investments, and related areas can prepare for an investment banking career by developing necessary skills.
• Usually, firms prefer to hire MBAs from top institutes as business-oriented courses and certifications would help prepare them better for investment banking roles. However, one would need expert knowledge of finance as well.
• MBA is one of the few courses in finance with excellent networking opportunities, which can be a big advantage for professionals in this field. Banking internships are more competitive than some entry-level positions in other areas of finance.
• Most investment banking professionals start their careers as analysts or associates. After a few years of professional experience under the belt, they can begin an arduous climb up the career ladder to acquire the positions of VP, Director, and Managing Director.

Skills Needed:

• Advanced knowledge of financial concepts and excellent analytical abilities
• Should possess excellent networking abilities and be an expert at client negotiation
• An ability to perform well under pressure.
• Hard skills like Financial Modeling, Valuations, Excel, PPT, etc are a must.

1. The basic difference between corporate finance and investment banking is that the former is a broader concept while the latter is a narrow concept. Moreover, investment banking is a part of corporate finance.
2. Corporate financing helps manage an entity, whereas investment banking allows an entity to grow, i.e., raise its capital.
3. Another difference could be that the former is used to analyze the financial statements of one's own company. In contrast, the latter is used to analyze the financial statements of other companies. In other words, corporate finance is concerned with financial operations, and it enables an organization to make crucial decisions about investment making and raising capital. In contrast, investment banking is concerned with significant financing activities of other companies to help them raise capital for themselves. The financing activities in investment banking may include mergers and acquisitions of other companies, issues of shares, etc., solely to enable organizations to raise their share capital.
4. The purpose of corporate financing is to help an organization maximize its worth through strategic financial decisions and involves activities like resource allocation, identification of reinvesting options, raising capital through the issue of equity shares or debt, and so on.
5. The variety of job roles offered incorporate financing is higher than the variety of job roles offered in investment banking.
6. Corporate financing jobs are not that competitive compared to the jobs in Investment banking.
7. A corporate financing analyst will need to prepare financial reports for their hired company. In contrast, an investment banking analyst will be required to prepare pitch books and memorandums for other companies.
8. A corporate financing analyst is levied with the responsibility of preparing tax returns and offering tax advisory services for the company they are employed. On the other hand, an investment banking analyst is levied to offer advisory services to other companies.
9. A corporate financing analyst manages an entity's short-term and long-term business goals and even takes care of the day-to-day business operations of the same. On the other hand, an investment banking analyst is concerned with raising capital for organizations, providing underwriting services, mergers and acquisitions, retail and commercial banking, sales and trading, and equity research.
10. The skills required to become a corporate financing professional are excellent written and verbal communication skills and a thorough understanding of corporate financing. On the other hand, the skills required to become an investment banking professional are financial, excellent oral and written communication skills, and mental mathematics skills.
11. Corporate financing jobs are not as stressful as investment banking jobs. It is merely because investment banking jobs are very demanding, and it requires an individual to give more time and be always on the go. At the same time, corporate financing is quite easy, and the professionals will be required to dedicate a fixed amount of time only.

Corporate finance is broader in its scope and offers a greater variety of job roles compared to investment banking. It must also be made clear that investment banking roles are typically far more competitive than most corporate finance roles and are comparatively hard to find. Individuals can carve out a career path in corporate finance as an accountant, financial analyst, advisor, account manager, or treasurer, among other professional roles.

Investment banking is a specialized branch of corporate finance with fewer career opportunities. Investment bankers help their clients issue equity and debt securities to raise major capital and facilitate M&As (Mergers & Acquisitions) along with other major financing activities. This kind of role requires people on the higher end of the spectrum in terms of communication skills and negotiation abilities, authoritative knowledge of finance, and a flair for mathematics, qualities that can be difficult to find in a single individual.

Till about a decade ago, investment banking was the preferred choice of a career in finance. However, the playing field has been leveled out in the past few years, as investment banking took a hit, especially in the post-credit crunch era. The economy continues to recover, and the financial industry is witnessing a large-scale restructuring. Even today, investment banking is a prized choice, but it has become increasingly difficult to get in. In New York and London, two of the global investment banking hubs, they prefer to hire from the best of Ivy League schools, which may not be everyone's cup of tea.

On the whole, as per an estimate by the US Bureau of Labor Statistics, the financial industry is set to witness nearly 11% job growth between 2012 and 2022. This can be considered a healthy figure as long-term averages go, and it bodes well for anyone planning to take up finance as a career.

Corporate Finance

It would be quite difficult to identify the average earnings of corporate finance professionals as the nature of work varies a great deal from one job role to another.

• However, as per research by Robert Half International in 2009, an entry-level financial analyst earns anywhere between $35,000 to $50,000 annually.
• In larger firms, they could earn between $40,000 to $50,000.
• To put things in perspective, perks have gone up since, taking the median salary for a financial analyst to around $79,000 as of May 2014, according to the US Bureau of Labor Statistics.
• Experienced analysts can earn as much as $55,000 to $88,000, whereas a tax manager might earn between $90,000 to $130,000 per year.
• Assistant Treasurer could earn between $85,000 to $115,000. On the higher end, a chief financial officer (CFO) can have a pay package over $250,000 on average.

Investment Banking

Despite a slight downturn in the investment banking sector, it continues to offer much higher remuneration than any jobs in corporate finance.

• Even investment banking interns might earn $70,000 to $80,000 on average, and after joining as an analyst, they could earn between $115,000 to $130,000 with bonuses in the range of $15,000 to $30,000.
• One of the most significant factors in this respect is the firm's size, which largely determines the kind of remuneration one might be offered.
• For instance, large firms in New York could pay between $120,000 to $200,000 for top MBA graduates, which is way above the average package.
• There has also been a rising trend of equity-based incentives awarded to investment banking associates. After accumulating experience of more than three years, associates could earn anywhere more than $200,000 per year on average. However, in smaller firms, it could be comparatively much lower.

Both in corporate finance and investment banking, the firm's size hiring an individual might make all the difference in pay packages and incentives. It is why remuneration for similar positions might vary greatly in different firms, so investment banking should be the better choice based on salary figures. Still, it appears that one might be able to earn much higher in a corporate finance position with a large firm.

Corporate Finance

Pros:

• The average median salary for several corporate finance positions indicates that most of the openings in this domain fall in the higher-earning bracket within the financial industry. Perks are quite good, and growth prospects are abundant.
• There is a greater variety of career roles than in investment banking, making it easier to choose a role in keeping with individual skill sets and capabilities.
• More openings are available in this field than in investment banking. Despite being competitive, it would not be nearly as difficult to land an opening in corporate finance as in investment banking.
• Work hours are not among the best but stand on a much better level than investment banking. As far as finance careers are concerned, work hours are not bad, but it might depend on the exact nature of the role and the work pressure.

Cons:

• For some of the job roles, a Master's Degree could be required, and generally, people with relevant certifications to support their career role are preferred over most others. However, corporate finance involves key decision-making activities, and it would only be reasonable if employers prefer to hire those with a competitive advantage. It makes the field slightly more competitive than some other finance areas.
• Most career roles are not nearly as well paying as most investment banking jobs. However, one could bag a higher pay package with a good firm.
• One of the obvious downsides is in terms of recognition. Where investment bankers are often lauded for their contribution to successfully brokering M&A deals or other major transactions, corporate financial analysts are not considered on the same pedestal despite the critical nature of their work.

Investment Banking

Pros:

• It is a kind of front-runner choice in terms of a finance career. One of the reasons is that it is one of the best compensated jobs, which brings a good deal of industry recognition. Entry-level perks are undoubtedly among the best in the financial industry, and even an entry-level investment banker working with a large firm can earn much better than more experienced professionals in other areas of finance.
• The learning curve is steep for entry-level analysts who get to work in an intensive work environment and interact with some of the best minds in the industry. After putting in a few years of hard work, they can occupy the positions of VP, Director, and Managing Director. The initial phase of 2-3 years can help them acquire a solid foundation in investment banking and could be in for the long haul.
• This job role is cut out for those driven by a desire to outperform competition and possess a combination of excellent negotiation capabilities, advanced knowledge of finance, and the ability to handle intense work pressure.

Cons:

• After the 2008 global meltdown, there has been a decline in investment banking jobs. Still, it continues to be one of the most promising careers as major corporations continue to hire fresh talent. However, with another market slump, things could take a turn for the worse for investment bankers.
• Due to intense work pressure, many entry-level analysts move on to new roles within the first couple of years which has also come to be known as the 2-year itch. If anything, it indicates how demanding this job role can be, and not everyone may be cut out for it.
• Work hours are intense, with investment bankers working for an average of 75 to 100 hours a week. Even those who survive the initial phase might need to pay extra attention to their health in later years, given the kind of work strain. Do check out the Investment Banking Lifestyle

Corporate finance appears to be a better choice in terms of working hours than investment banking. Investment banking enjoys a rather poor reputation for intense work hours, and there is but little time left for family, friends, recreation, or relaxation. As one of the most competitive finance jobs, one would rather expect higher-level professionals to be incentivized with better work-life balance, but it might not be the case.

Even in corporate finance, work hours are not among the best, but professionals usually have enough time and energy left to stretch their legs. However, as most of the roles in corporate finance widely differ in terms of responsibilities, work hours might also vary. Still, on average, they enjoy a more balanced professional existence. Investment banking is usually meant for those who love to be recognized as workaholics.

While choosing a career, any individual should try to assess objectively if they possess the desired skillset and, most importantly, if they would like the work role or not. The same holds for both of these careers as well. Both are competitive areas in finance with good perks and excellent growth opportunities. Still, investment banking has an advantage in compensation and possibilities to grow as a professional.

Those who value spending creative time away from work might prefer corporate finance over investment banking as the latter may not be such a good choice in terms of work hours. However, the decision should not be based on any single factor, compensation, or work hours. A balanced view of the work role should be carefully measured against an individual's skill set, capabilities, and goals before one decides anything.

This has been a guide to Corporate Finance vs. Investment Banking. We discuss the top differences between corporate finance and investment banking using education requirements, skills, and work-life balance. You can learn more from the following articles –

• Top Corporate Development Careers
• Investment Risk
• Investment Banking vs Corporate Banking