What Is Finance? Definition (Plus 12 Financial Career Paths)
Updated February 3, 2023
A person who works in the finance industry has an array of potential career options to choose from. These options can range from working on your own and helping people manage their finances to working for an investment bank and guiding massive corporate mergers. If you understand the various roles the finance industry can provide, it can help you pursue a career that's right for you.
In this article, we discuss what finance is, list 12 potential career options in finance and provide tips to help you succeed in this field.
What is finance?
Finance is the professional management of money, and it can include managing debt, making investments, creating budgets and forecasting revenues. Finance often includes three broad areas, which are personal, corporate and government. Personal finance often refers to people who help individuals manage their private portfolios.
In corporate finance, a person usually works for a company and has various responsibilities related to budgeting. In the government, finance can involve budgeting and include enforcement activities related to finance practices in private industry.
12 career options for finance professionals
There are many professional roles a person working in finance can pursue, including:
Commercial banking involves working with businesses and managing their finances. For example, someone working in commercial banking might issue loans, develop lines of credit and provide cash management services.
Someone with a financing background or credentials can work in various capacities in commercial banking. They might work as a credit analyst to determine a business' capacity to carry debt or as a loan officer to issue small business loans and create financing plans for a business.
A person in finance in commercial banking often works with clients and lenders, providing information to both and facilitating transactions or creating financing plans. Sometimes, these professionals develop loans and negotiate loan terms. In other instances, they market some of the financial products and services the commercial bank offers.
An investment banker usually works with the sale or mergers of companies. For example, a company may hire an investment bank to conduct due diligence regarding their plans to purchase another company.
The investment bank evaluates the company's finances and determines an appropriate valuation for the purchase. The investment bank then helps determine a structure for the sale and how to structure debt and equity related to the sale.
If you work in investment banking, you might start as an analyst or an associate. As an analyst, you can do much of the foundational work for an investment bank's client. For example, you conduct research, create reports and conduct analysis.
Usually, investment bank vice presidents sign off on your work or request revisions. Sometimes, an associate might create a pitch book, presents investment opportunities to potential clients.
Finance often plays a role in corporate budgeting. Some companies employ a chief financial officer. The CFO often works closely with the CEO to create a budget and manage the company's finances. For example, the CFO might help create the budget and later report on the company's performance against the budget's expectations.
People in finance often conduct revenue and expense projections. The analysis involves assessing the company's cash flow. If the company has to take on debt, it might develop a structure for the debt to minimize the impact on the company's monthly and yearly cash flow.
Capital financing refers directly to how a company funds investments. For example, if a company wants to make a capital investment in equipment to improve productivity, a finance professional might help develop a plan for the debt and come up with information that demonstrates to the lender the company's ability to pay the debt back.
The analysis can involve creating reports articulating the potential return on investment of the expenditure. They also might have involvement in how a company secures financing. For example, a company can raise capital by selling company stock or issuing debt securities.
In capital financing, a professional works to keep the cost of capital as low as possible. Their goal is to keep the weighted average cost of capital low by creatively structuring the debt a company has. For example, they might backload the debt, figuring additional revenue from the capital investment can cover more costs later.
Related: How To Become a Finance Associate
Capital management involves managing a company's fiscal position and liquidity. For example, a professional in this field might decide the amount of money a company can set aside in its reserves, and they can come up with other strategies, such as creating a fund for long-term capital expenditures, to reduce or avoid taking on too much debt.
Capital management often involves retained capital, which is money the company keeps rather than distributing to shareholders or investors. Instead, this is the money it retains for a capital management reason, such as a planned business expansion.
Wealth management often involves helping a client achieve financial goals. For example, if a client has a goal of having a certain amount of money for retirement, a finance professional might create a plan to help them achieve that goal.
The plan could involve safe, long-term investments, such as blue-chip stocks or bonds. Usually, they help clients create a portfolio that might include various kinds of assets.
As part of their work, they might recommend investments, such as purchasing specific kinds of stock. Wealth management also involves creating investment strategies, like real estate investing. Wealth management essentially is about helping clients reach their goals and helping them grow their money and assets.
People in finance often work as accountants, managing a business's financial records. For example, they can track a company's revenue and expenses. At the end of the year, they might help calculate the company's tax liability and handle the filing of the company's tax documents.
The accountant also might regularly provide updates regarding the company's financial position, creating profit and loss statements and other reports. They can limit the company's tax liability by depreciating the value of assets and understanding how to deduct expenses.
An auditor can work for a private company, analyzing finances and ensuring the accuracy of financial reports. These professionals also can reconstruct spending and other transactions to ensure the truthfulness of reports. Sometimes, an auditor works for the government or as part of an investigation into potential fraud.
Insurance involves accessing potential risks and creating an insurance policy for clients. Many industries and professions use insurance as part of their work. For example, architects often have insurance to lessen liability on their projects.
A finance professional in insurance might work with large clients, creating an insurance plan that limits their liability and calculating rates for the policy. If there's a claim, they might help determine the appropriate payout to the client.
10. Mortgage lender
Professionals with a finance background might work to help create real estate contracts for large commercial land sales. A significant element of real estate involves debt and equity. In mortgage lending, finance professionals might help create a debt payment plan for a loan.
In other situations, a business might try to raise capital through real estate, using the property as collateral or taking a loan out on a piece of property based on the property's equity position.
One finance career path is working in equity research. Equity research involves conducting analyses, creating reports and making recommendations to clients regarding investment possibilities. A person in equity research might work in investment banking, suggesting the purchase of assets that they believe could rise in value.
For example, they can work for a client or company to research a specific asset. A company might want to buy media properties, and they would conduct research of potential asset buys and make recommendations.
Equity research also involves the sale of assets. In this role, they might analyze the market to see whether it's a good time to sell an asset and what kind of value the market might support for it.
Market analysis often involves evaluating market conditions as part of long-term financial modeling. Professionals in this field might evaluate long-term macroeconomic trends that can impact a company's business and make financial recommendations. Market analysis involves a considerable amount of forecasting.
For example, they might analyze trends related to the cost of materials related to production. If the cost of raw materials has been rising, they can project out higher production costs over the long term and build the projection into financial modeling for the company. In other instances, market analysis might focus more on competitors in the marketplace and areas of potential product and sales growth.
Tips for working in the finance industry
Here are some tips that might help you succeed in the finance industry:
One of the central roles a person in finance performs is evaluating potential investment opportunities. Although you can work in many areas, this analysis is often central to the role. Understanding how to conduct an analysis of an investment opportunity and convey that information in a report can help you succeed.
Regardless of what area of finance you work in, the federal government might regulate it. Public companies follow specific rules in terms of how they report earnings and present information to the public. If you work in accounting or work with tax filings, understanding applicable laws can help you succeed.
Communication is an important skill set for someone in finance because nearly every position involves a significant amount of reporting. Although conducting the analysis and crunching the numbers is essential, communicating that information is just as important. Take the time to develop your communication and presentation skills so that you can deliver complex information effectively.
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