Finance Club Newsletter #2
The Finance Club again welcomes you to the Stephen M. Ross School of Business at
the University of Michigan. This is our second of three summer newsletters.
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TABLE OF CONTENTS
I – CAREER PATHS
a. Corporate Finance
b. Sales and Trading
c. Investment Banking
d. Private Wealth Management
e. Equity Research
II – RESOURCES
III – WHAT NEXT
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I – CAREER PATHS
The Finance career opportunities and recruiters at Ross are varied and the jobs differ
in terms of responsibility, skill set, and lifestyle. As you self-assess what career
option is right for you, think through what role would provide the best “fit” for you:
a. Corporate Finance
Corporate finance includes two key functions: accounting and finance. Accounting
concerns itself with day-to-day operations-bookkeeping. Accountants balance the
books, track expenses and revenue, execute payroll, and pay the bills. They also
compile all the financial data needed to issue a company's financial statements in
accordance with government regulations. Finance professionals analyze revenue and
expenses to ensure effective use of capital. They also advise businesses about
project costs, make capital investments, and structure deals to help companies grow.
In spite of their different roles, finance and accounting are joined at the hip: The
higher levels of accounting (budgeting and analysis) blend in with financial functions
(analysis and projections). Thus, finance and accounting are often treated as one,
with different divisions undertaking particular tasks such as cash management or
taxes.
Divisional Financial Analysis
In this area, you work with each division's business team to prepare financial plans,
make forecasts, and compare actual financial results to forecasts. You may also
evaluate the financial consequences of alternative strategies.
Responsibilities include everything from analyzing new business opportunities to
restructuring a business or developing a capital-spending program. The primary
concerns are to find better ways of using company assets, to reduce costs, and to
research ways to develop better forecasts. Financial services evaluates the risks
versus potential return of any course of action and develops recommendations so
that managers can pick the most profitable strategies, depending on their goals.
Corporate Development and Strategic Planning
Corporate development involves both corporate finance and business development.
Finance experts in corporate development study acquisition targets, investment
options, and licensing deals. They often assess the best firms to buy or invest in,
such as pre-IPO cutting-edge technology companies with complementary products
that could either extend the company's product line or mitigate a potential future
competitor. Corporate development jobs require planning and analysis know-how
and the kind of skills that investment bankers working merger-and-acquisition deals
put to use.
Treasury
The treasury department is responsible for all of a company's financing and investing
activities. This department works with investment bankers who help the corporation
raise capital through stock or bond issuances, or to expand through mergers and
acquisitions. Treasury also manages the pension fund and the corporation's
investments in other companies. The department also handles risk management,
such as safeguarding corporate assets by using insurance policies or currency
hedges.
Cash Management
This is a company's piggy bank. The cash-management group ensures the company
has enough cash on hand to meet its daily needs. The group also invests excess cash
in overnight short-term investments. It also negotiates with local banks to help
regional business units get the necessary banking services at the best price.
Taxes
Activities in this area involve administering taxes (that is, paying taxes on time-or
finding tax strategies to avoid paying them) and planning how to decrease the
company's tax burden. Responsibilities include working with attorneys on tax
litigation, researching tax laws and reporting requirements by nation (if the company
is international), and keeping up with new government rules and regulations.
Large companies often have an entire department dedicated to recommending
methods to minimize the tax impact of any business decision such as a new division
launch, a capital-spending plan, or purchasing a new company. Investments and
pensions are also managed with an eye toward minimizing taxes. The tax
department helps structure transactions, makes recommendations on the timing of
acquisitions or sales based on what else will be written off that year, and can decide
what corporate-reporting structure reduces taxes.
General Accounting
General accountants are responsible for tracking the firm’s business transactions and
for preparing both internal and external financial packages. External financial
information includes consolidated financial statements, the footnotes thereto, and
any financial related SEC reporting documents. General accountants also track the
corporate budget, cash flow, and ensure appropriate levels of working capital. Many
general accounting positions lead to positions such as controller or CFO.
Internal Audit
When most people think of an audit, they think of a large Big Four accounting firm
like Ernst & Young that tests to verify the accuracy and completeness of a company’s
financial statements. However, in addition to having an external auditor, most large
companies also have an internal-audit group that regularly visits individual company
branches to check the company's accounting systems, to evaluate internal business
processes, to assess internal controls, and to make recommendations to executive
management. The internal-audit group reviews the quality of the data, making sure
it's both accurate and complete. Internal auditors also evaluate whether the
corporate-accounting procedures are effective and universally applied. Finally,
internal auditors introduce or revise procedures to improve efficiency and reduce
costs. The internal audit function generally reports directly to the CFO or CEO.
b. Sales & Trading
If you've ever been to an investment banking trading floor, you've witnessed the
chaos. It's usually a lot of swearing, yelling and shouting: a pressure cooker of
stress. Sometimes the floor is a quiet rumble of activity, but when the market takes
a nosedive, panic ensues and the volume kicks up a notch. Traders must rely on their
market instincts, and salespeople yell for bids when the market tumbles. Deciding
what to buy or sell, and at what price to buy and sell, is difficult with millions of
dollars are at stake.
Sales
Sales is a core area of any investment bank, comprising the vast majority of people
and the relationships that account for a substantial portion of any investment bank’s
revenues. The institutional salesperson manages the bank's relationships with
institutional money managers such as mutual funds or pension funds. Institutional
sales is often called research sales, as salespeople focus on selling the firm's research
to institutions.
Trading
When Hollywood directors want to portray the rough, unruly underside of Wall Street,
they wheel the cameras onto a trading floor. This is as close to the money as you can
get. Traders manage the firm's risk and make markets by setting the prices--based
on supply and demand--for the securities the investment banking side has
underwritten. Like sales, but more so, you're tied to your desk and phones while the
markets are open--but you get to leave after the closing bell.
The players in the trading game depend on the firm. There are no hard and fast rules
regarding whether or not one needs an MBA. The degree itself, though less applicable
directly to the trading position, tends to matter beyond the trader level. Managers
(heads of desks) and higher-ups are often selected from the MBA ranks. A few
traders even grow up to be CEO. Why? Because they know more about the markets
and the money than anyone else in banking.
c. Investment Banking
The investment banking industry spans a wide spectrum of capabilities, industries,
and product lines. Investment banking Professionals specialize in capital markets
(equities, investment grade debt, and high yield securities), corporate finance,
financial restructuring, mergers and acquisitions, and private equity. Industry
specialists work closely with analysts, traders, and sales professionals to create
financing alternatives that are innovative and effective. Through the process of
"underwriting" investment banks facilitate the issuance of both corporate and
government securities providing essential capital to both groups. In addition they
help investors purchase securities, manage financial assets, and trade securities. One
of the most highly public roles of an investment bank involves the strategic financial
advisory services they provide to companies involved in merger and/or acquisition
deals and in the divestiture ("spinning off") of various company assets or businesses.
d. Private Wealth Management
Private banking and wealth management is the coordinated delivery of banking,
asset management, insurance and fiduciary and tax services to high net worth
individuals through a network of highly trained private bankers, investment
managers and other specialists. The private banking and wealth management market
continues to grow. Over the last decade the number of affluent individuals has risen
at the greatest rate in human history. The total wealth held by affluent individuals
has increased steadily around the world producing an unprecedented number of
wealthy individuals.
This fact has not gone unnoticed by the bulge bracket firms and money management
institutions that recognize the value of the stable revenue stream a private wealth
management practice can provide. These institutions, seeking to capture a greater
portion of the highly fragmented asset management business, have put a greater
emphasis on developing a stronger private banking practice. This had made private
wealth management the fastest growing segment of most investment banks.
Private wealth managers interface with multiple divisions of investment firms and are
able to offer clients resources and services that sophisticated institutional investors
have traditionally enjoyed. Offerings include investments in initial public offerings
(IPOs), new issues, derivatives, and proprietary products. Private wealth managers
also deliver an institutional level of research, advisory services, and execution to
investors.
e. Equity Research
Equity analysts conduct "fundamental" research, which can provide significant
foresight regarding equity securities and, increasingly, convertible and high-yield
instruments. Fundamental research includes assignment of major factors and trends
driving an industry's growth prospects, analysis of individual companies' positions
within an industry, detailed company-specific financial analyses and forecasts and
valuation of the companies' securities in the marketplace. In addition to specific
company reports, analysts publish comprehensive industry reports, weekly and
monthly industry updates, and specific reports on products such as convertible
securities.
To the outsider, it seems that research analysts spend their time in a quiet room
poring over numbers, calling companies, and writing research reports. The truth is an
entirely different story, involving quite a bit of selling on the phone and on the road.
Analysts produce research ideas, hand them to associates and assistants, and then
man the phone talking to buy-side stock/bond pickers, company managers, and
internal salespeople. They become the managers of research reports and the experts
on their industries to the outside world. Thus, while the lifestyle of the research
analyst would initially appear to resemble that of a statistician, it comes closer to
that of a diplomat or salesperson. [Vault.com]
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II – RESOURCES
Overwhelmed? Not to worry, it takes time to digest all of the options. Below are
some additional resources available to you as you decide which finance related career
is right for you:
General site on careers in finance:
http://www.careers-in-finance.com/
Kresge Library Resources:
http://www.bus.umich.edu/KresgeLibrary/Collections/ByTopic/Careerhome.htm
Utilize the following primary databases for your searches:
WetFeet & Vault guides
Books to consider reading:
I-Banking:
“Liars Poker” by Michael Lewis
“Barbarians at the Gate” by Bryan Burrough
“Monkey Business: Swinging Through the Wall Street Jungle” by John Rolfe and Peter
Troob
*Take all of these with a grain of salt*
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III – WHAT NEXT?
In our third and final newsletter to come out in early August, expect to explore the
following:
Course planning, career preparation, calendar, useful links, and officer contacts
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We look forward to meeting you in the Fall!
The Finance Club at the Ross School of Business.