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  • 1. 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” 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
  • 2. 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,
  • 3. 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
  • 4. 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
  • 5. 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: 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* ____________________________________ 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 ____________________________________ We look forward to meeting you in the Fall! The Finance Club at the Ross School of Business.