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.
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
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”
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.
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
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.
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
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 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.
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 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.
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
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
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
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]
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:
Kresge Library Resources:
Utilize the following primary databases for your searches:
WetFeet & Vault guides
Books to consider reading:
“Liars Poker” by Michael Lewis
“Barbarians at the Gate” by Bryan Burrough
“Monkey Business: Swinging Through the Wall Street Jungle” by John Rolfe and
*Take all of these with a grain of salt*
III – WHAT NEXT?
In our third and final newsletter to come out in early August, expect to explore the
Course planning, career preparation, calendar, useful links, and officer contacts
We look forward to meeting you in the Fall!
The Finance Club at the Ross School of Business.