Businesses are always looking for ways to finance their business in the best way with minimal risk. Corporate finance and investment banking are two of the main ways that large companies seek to maximise returns for their shareholders.
Though closely related and with a number of similarities, these are two quite different areas, so it’s important to understand the difference between corporate finance versus investment banking.
What is Corporate Finance?
Corporate finance is a group of functions that work to secure the long-term financial success of an organisation. It is in charge of all areas related to sourcing funding for the business, as well as investments, capital structure, and return on capital.
The key goal of corporate finance is to add value for shareholders and increase their wealth. It aims to help the company grow and increase its financial value by assigning financial resources responsibly.
Finance managers can do this in a variety of ways, such as recommending capital investments, setting the organisation’s capital structure, and deciding whether profits should be reinvested into the business or given to shareholders and dividends.
What is Investment Banking?
Investment banks are financial institutions that raise capital for other organizations by selling securities in equity and debt markets. These institutions also assist companies to execute mergers and acquisitions, as well as coordinating other financial activities. They not only perform detailed and complex financial analyses, but also act as advisors to large clients with a wide array of financial assets.
Investment banking is a division of banking that allows issuers of securities to access the public and raise funds through exposing their securities to potential buyers. Investment banking deals with multiple sectors, like mediation and underwriting tasks. Investment banking is often seen as a subcategory of corporate financing: organisations may have an investment banking subdivision within their finance department.
Corporate Finance vs Investment Banking: Similarities
Both investment banking and corporate financing play a critical role in helping a company to grow and develop.
Some of the key similarities between these two areas are:
- Both fields play an integral role in managing the financial resources of an organisation.
- To work in either field you need to be a qualified professional, typically with a graduate degree.
- Both approaches require a significant commitment of capital and assets from businesses.
- Each field deals with repayment and returns earned on investments, though with different structures.
However, there are some key differences between corporate finance and investment banking.
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