Finance has been one of the most preferred options for candidates pursuing MBA from top business schools worldwide. The finance field has been glamorized by the high pay packages given for the investment banking and other such profiles at B Schools. Due to this, many MBA aspirants these days expect to take finance as a major, only to know that it is not what they had expected it to be. This post tries to give a basic understanding to the amateur about what Finance exactly is and the various career options available.
What is Finance?
Wikipedia defines Finance simply as the management of Money or funds. If it is the funds of individuals, it becomes personal finance. Fund management of Corporates is corporate finance and for public institutions, it is public finance. Finance is one of the most important aspects of business management and it includes decisions related to use and acquisition of funds for the enterprise. It involves managing the financial risk return match for any entity.
To be a successful student of Finance, the following skills would be helpful:
· Analytical skills: Finance is all about analysis. Financial statement analysis, risk analysis, portfolio analysis etc.
· Subject Matter Expertise: For accurate analysis, one needs to be equipped with all the concepts of the subject.
· Diligence: Attention to detail is very important. Ability to identify the critical aspect in the problem.
· Numbers: Some hate Mathematics. In Finance, one would need to work with numbers. Being adequately comfortable with numbers is sufficient for Finance. You don’t need to be a mathematician.
· Patience: Many problems of Finance require extensive research and reading to solve. This requires patience.
Components of Finance
There can be many classifications of Finance. Let me go through the classification of courses which will give you a general idea of the subject. Generally the subjects taught in many B Schools are as follows:
· Micro Economics: It forms a basic foundation on the supply demand aspects of economics.
· Macro Economics: Generally found to be more interesting. It involves the stuff that we generally encounter while reading business papers such as ET, FT or Business Standard. GDP, Inflation, foreign exchange, monetary policy, fiscal policy, deficit, etc are some of the terms that you will come across in this course. It was one of my best courses here at IIM Raipur.
· Accounting: Most of the B School aspirants in India are from the Engineering background with little or no exposure to accounting. It is here that they are introduced to the concept of financial statements such as balance sheets, P&L statements etc. Basic accounting concepts used to prepare these statements are introduced in this course. In addition to this, costing techniques such as activity based costing are also introduced.
· Finance Management: This can be classified as corporate finance. It is what corporates use to raise funds, or manage available funds. Corporate generally have two options available to raise funds: debt or equity. The aim of the corporate is to reduce the cost of raising funds. It involves time value of money, Discounted cash flow model, capital budgeting, IRR, NPV calculations, cost of capital, debt, equity, etc.
· Business Analysis and Valuation: The value of a corporate entity affects the firm in many ways. The share price of the company depends on its valuation. This course aims at introducing various valuation techniques in use. Very useful for the budding Investment Bankers and equity research aspirants.
· Security Analysis and Portfolio Management: Risk return management. The course involves the analysis of various securities and forming a portfolio to diversify the risk for any entity. Useful for the equity research aspirants.
· Financial Derivatives: Derivatives are the instruments used to hedge risk. They can be commodity derivatives, financial derivatives. These include options, futures, forwards, swaps, the latest Credit Default Swaps (CDS), Collateralized Debt Obligations (CDO) etc. Basic functioning of these instruments and various strategies used are introduced. This course is useful for trading profiles and for general understanding of the capital markets.
· Many other electives are offered as a part of the curriculum and the students can choose based on their interest. These include risk management, cost management, financial services and institutions, international corporate finance, econometrics, etc. Wiki the names for more details on each of them.
There can be numerous roles that one can pursue as a career after studying Finance. These include: investment banking, retail banking, wealth management, risk management, asset management, corporate finance, trade finance and cash management, trading, Mergers and Acquisitions, Equity research, Treasury, Private Equity etc. Regular recruiters at B Schools include Consulting firms such as Deloitte, KPMG, E&Y, PwC, Banks such as HSBC, Citi bank, Axis Bank, ICICI, Yes bank, SBI, etc, Investment Banks such as Goldman Sachs, JP Morgan, Morgan Stanley, SBI Caps, etc. Most of these firms offer challenging profiles and promise an exciting career. This is the reason why there are so many takers of Finance as a major.
To differentiate yourself from others, you can take up certifications such as CFA, FRM, NCFM, ICAI, CCIL, etc. Each of these certifications tests the candidate in a particular field and awards certification in the same.
CFA stands for Certified Financial Analyst and it consists of 3 levels. It is generally a much sought after certification and can help get Investment Banking profiles.
FRM stands for Financial Risk Management. This is for all the risk management aspirants out there.
NSE Certification for Financial Markets (NCFM) consists of many modules such as derivatives, banking, and financial markets etc. 3 NCFMs can make you an NSE Certified Market Professional (NCMP).
Pre Reads before joining a B School
You can start reading the economic times or Business Standard if you aren’t already doing it. Most of us coming from the engineering background had problems in understanding Accounting and we had to spend sleepless nights trying to figure out head or tail of it. So it is recommended to acquaint yourself with basic accounting and MS Excel. This applies to non-Finance students as well because the course is compulsory for all.
I sincerely hope that this article has introduced you to at least some aspects of Finance and can help you take a decision that will change your life.