Companies are constantly looking for ways to finance their business with minimal risk. Investment banking and corporate finance are the two most popular ways large companies adopt to maximise returns for their shareholders.

Essentially, corporate finance refers to the financial aspect of a company. It covers decision-making related to funding, investment sources such as debt or equity, and analysis of financial projects in terms of overall costs and profitability. On the other hand, investment banking refers to financing activities related to raising finance in the company through stock trading or other means and is a subcategory of corporate financing.

This article covers everything you need to know when comparing investment banking and corporate finance, including their definitions, similarities, and differences.

Corporate finance is a group of functions that work to secure the long-term financial success of a company. It oversees all areas concerned with sourcing funds for a business and capital structures, investments, and returns on capital.

The main objective of corporate finance is to add value for shareholders and increase their wealth. It helps the company grow and enhance its financial value by responsibly assigning financial resources.

Finance managers can do this in numerous ways, such as setting the organisation’s capital structure, recommending capital investments, and deciding whether the profits shall be reinvested into the business or distributed as dividends to shareholders.

Investment banking is a division of banking that allows issuers of securities to raise funds by selling securities in the debt and equity markets. It is often seen as a subpart of corporate financing and deals with multiple sectors, such as underwriting and mediation tasks. Investment bankers assist companies in executing mergers and acquisitions as well as coordinating other financial activities. They not only perform complex and detailed financial analyses but also act as advisors to large clients with a wide array of financial assets.

Though closely related and sharing numerous similarities, investment banking and corporate finance are two very different fields. Here is a quick investment banking vs. corporate finance comparison:

1. Purpose

Investment banking and corporate finance vary greatly in terms of their purposes and scope. Investment banking helps businesses raise funds through various methods, such as mergers and acquisitions and selling securities, whereas corporate finance helps organisations acquire funding and manage their assets.

Corporate finance is in charge of managing an organisation, which involves helping it expand, acquiring funding, and increasing business value. On the other hand, investment banking uses securities to raise capital and assists in large and complicated financial transactions, such as mergers and acquisitions and IPOs.

Thus, investment banking’s focus is more niche, whereas corporate finance helps with overall financial success.
 

2. Work

Investment banking has a narrower scope of work and tends to be more competitive. Its focus involves helping organisations navigate mergers, acquisitions, and IPOs. It also involves underwriting new debts and securities.

Conversely, corporate finance has a broader scope. It assists businesses in maximising their financial value through various activities, including business expansion, securing business lines of credit, researching new products, and more.
 

3. Documentation

In the context of documentation, corporate finance professionals prepare documents such as balance sheets and P&L reports. Investment bankers are in charge of creating pitch books, portfolios, and memorandums that help with relevant financial transactions.

Corporate banking differs from investment banking as it involves providing corporations with a range of financial services. It is a long-term relationship that delivers traditional banking, financing services, and risk management solutions to corporations. Investment banking, on the other hand, is transactional and assists organisations with one-time transactions, such as an Initial Public Offering (IPO).

Corporate finance is generally not considered an ideal pathway into investment banking. Corporate finance roles involve budgeting, planning, operations, cash management, and accounting. These roles do not require the same skills as investment banking, such as financial modelling and valuation.

While investment banking and corporate finance are both important components of the financial world, they address different areas of a company’s financial needs. Investment banking is concerned with navigating the complex world of external capital markets and enabling financial transactions, while corporate financing aims to secure a company’s internal financial stability and growth. Understanding the key differences between these concepts is crucial for firms and investors trying to make informed financial decisions in today’s dynamic global economy.

If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.