What’s the Difference: Corporate Finance Vs. Investment Banking

Although a fair number of people tend to use these two terms interchangeably, they do have some fundamental and sometimes subtle differences, which anyone who is operating in financial circles, should know.


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Corporate finance explained

In simple terms, corporate finance describes the financial activities of a company and is a division of the business specifically dedicated to raising and managing the funds needed to finance projects and ongoing cash flow needs.

The corporate finance arm of a company will be expected to anticipate and arrange the money needed for products and services as well as long-term goals, by arranging the right level of borrowing from banking sources.

Corporate finance also involves being able to make the right strategic calls about when the timing is right to acquire additional assets and also when it is time to clear certain liabilities.

Corporate finance is largely about budget management, but it is often more involved than producing forecasts, as a lack of forward-planning or an unforeseen lack of financial options, can seriously impair the progress of the business.

Investment banking explained

The primary goal of investment banking is to try and raise the capital needed by taking the company public and launching an Initial Public Offering, or to explore ways of raising money via stock and bond offerings and options.

An investment banker might not just provide assistance to go down the public offering route, as they also should have the contacts and market knowledge to be able management private placements, where they source sums of capital from either institutional investors or wealthy individuals.

Investment banking also covers the work of putting together mergers and acquisitions, and their role is mainly to identify the financial needs of a business and offer some long-term planning solutions that will help them achieve certain targets and goals.

Career prospects

There are two specific comparisons to be made when looking at the career opportunities and rewards available for someone working in corporate finance or investment banking.

The general perception is that a career in investment banking is more prestigious and more financially rewarding, although many have to decide whether the workload justifies the salary being offered.

If you want to pursue a career in investment banking, you will have to be prepared for some intensely long working hours and understand that openings and invitations to join the investment banking world are not always easy to come by.

It can often be the case that a number of people will find themselves in corporate finance because they found doors opening more easily for them in this sphere, but it should be remembered that neither career path is going to be that easy and both scenarios are equally demanding.

At least when you understand the difference between corporate finance and investment banking, you have a clear idea of what you are suited to and where to concentrate your efforts.

Charlie Harper started off in brokerage firms and now consults independently. He enjoys researching stock movements. He has also recently started blogging about his research and insights.