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

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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.

corporate finance

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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Corporate Finance vs Investment Banking: Differences

 

Purpose

Corporate finance and investment banking are very different in terms of their aims and purpose. 

Investment banking helps businesses raise capital in a variety of ways, such as mergers and acquisitions, as well as selling securities, while corporate finance helps organizations acquire funding and manage their assets.

Documentation

Corporate finance professionals prepare documents such as balance sheets and other financial statements for their organisation. Investment bankers on the other hand are in charge of creating portfolios, pitch books, and memorandums.

Roles and Responsibilities

Corporate financing offers a much more diverse range of job opportunities, while investment banking is more specialised.

Common roles in corporate finance include:

  • Account managers 
  • Accountants
  • CFOs
  • Benefits Managers
  • Auditors
  • Controllers
  • Financial Planning and Analysis Managers

Positions you’ll find in the world of investment banking include:

  • Financial analysts
  • Business analysts
  • Portfolio Analyst
  • Private Equity Associate

Employment Outlook

Investment banking and corporate finance are some of the most exciting career paths in the field of finance today. These areas offer a large number of rewarding roles with substantial remuneration as well as excellent opportunities for future growth.

According to the US Labor Bureau Statistics, corporate finance careers will increase by 5% from 2019 to 2029. Similarly, investment banking will witness a growth of 4% in its career opportunities over the same time period.

 

How to Pursue a Career in Corporate Finance or Investment Banking

If you’re looking to pursue a career in either corporate finance or investment banking, you’ll need to have an undergraduate qualification in finance or business management as a bare minimum. However, many roles in these sectors also require you to have a relevant graduate degree, such as a Master of Science in Corporate Finance.

Earning a CPA credential can also be highly beneficial for securing certain positions, such as Financial Analyst roles. In addition to sound knowledge of corporate finance and investments, you’ll also need to demonstrate a range of skills, such as excellent communication, analytical, and strategic management skills.

Finally, professional experience can be highly valuable, as this shows you know how to work under pressure and make sound critical financial decisions. 

If you’re just starting out in your career, interning can be a great way to build direct experience. Financial institutions and investment companies are great places to intern if you’re interested in working in investment banking. If you want to pursue a career in corporate finance, look for internships with large corporations that align with your career goals and personal values.

 

Key Takeaways

If you’re looking to build a career in finance, it’s important to understand the difference between corporate finance vs investment banking. While both of these career paths involve similar types of study, and demand similar qualifications and experience, there are some key differences. You should be clear on the differences between these two areas so that you can decide which path you’d like to pursue, and start building the specific skills and experience you need.

 

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