Nuances of Corporate Finance in each Industry

dan_yo23's picture
Rank: Neanderthal | 2,068

I want to start a thread talking about the nuances of corporate finance within each industry (Oil & Gas, Healthcare/Pharma, Aerospace & Defense, Manufacturing, Consumer Packaged Goods, etc).

The impression I've gotten is that you can bounce around between industries in the first few years of your career, but ultimately should settle in an industry, build expertise, and use that expertise to rise up. There are obviously exceptions to this, but that seems to be the general thought.

I joined Aerospace and Defense out of college, thinking that all corporate finance would be the same- might as well be around jets and missiles and satellites. I was very wrong, and wish that I had known more about finance in different industries to have a idea of what industry better matched my interests coming out of college. I think it would be helpful for younger Monkeys to know more about each industry, to possibly aid their decision and help them work on building industry expertise earlier. It would also be helpful to early-career monkeys like myself who are looking to make an industry jump in the near future!

I'll be adding a comment below to give an overview of A&D, and I'd appreciate if anyone else can comment to give a brief overview of the nuances of finance their specific industry. Thanks!

EDIT: @accountingbyday- can I get you to write a paragraph or two about healthcare/pharma finance? Nuances, government influence, things to consider when looking at the industry? This one is particularly interesting to me- hoping it isn't full of government oversight like A&D.
@CFLateral - Anything interesting/different about Tech?
@ArrozOwl - Anything different/unexpected about CPG?
@Poseidon_ I know you've changed industries, any insights there?

Thanks guys!

Comments (16)

Most Helpful
Jan 29, 2019

Aerospace and Defense (at the big 4 defense companies especially- Boeing, Lockheed, Raytheon, Northrop) is, as you would guess, driven by government contracts.

Many of these contracts are "Cost Plus Fixed Fee" contracts, so the companies are paid based on their cost to perform the contract, and a small fee on top of that. Calculating the cost falls to finance- Each hour of work done on the contract needs to be burdened with all possible costs associated with doing business. The salary of the worker performing the task, a portion of the salary of the worker's boss, a portion of the electric bill for the building, a portion of the office supplies, machine maintenance, etc. Every imaginable cost of the company gets burdened onto the billable hours. Most finance people at A&D companies are really cost accountants- tracking the costs to make sure they are spread appropriately, tracking the money spent compared to the tasks completed, making sure each contract is on target to its proposed value.

These roles are typically called "Program Controls" and classified as finance, but most of the time spent in this role is competing tasks more closely associated with accounting. The forecasting and planning responsibilities are minimal. Program controllers account for around 80% of the finance people at my company- 10% are the FP&A teams (which is traditional FP&A- planning and forecasting new and current contracts, developing the AOP, etc etc), and 10% are the corporate functions (CS/CD/IR/etc). This does not include the people classified as accounting- general ledger people, accounts payable/receivable, billing, etc.

There is a mantra in the business that you need to "come up through the programs", which means that they prefer to promote people with a depth of program finance experience. No one sits on an FP&A or true "corporate finance" team their whole career and gets very far- you have to do your time in the cost accounting environment of program controls. The cost accounting environment, as you would expect from a government contractor, is very complex and is filled with rules and red tape. Program Controls takes a long time to master, which leads to much longer time between promotions. The youngest finance managers I've seen are in their early 30s, and the absolute youngest director I've seen was 39.

Defense finance is good if you have more of an accountant's mind and like the job security and virtually guaranteed 40 hours per week. I've seen a complete lack of early mobility here, so if you are willing to work extra hours to try to move quickly, A&D is not the best place to be. Lastly, from what I've seen, the compensation here is about 10-15% less than market at every level.

Overall, A&D has great work/life balance at the sacrifice of higher pay and faster promotions. The work is more backwards-looking accounting-type work rather than forward-looking, finance-type work, which is great for some types but is not what you'd expect when joining the finance department.

I'm happy to answer any questions about A&D finance!

    • 14
Feb 17, 2019

Hey thanks for this write-up. Definitely wish this thread came out a few months earlier. I graduated back in December and accepted an FLDP offer for one of the big 4 you mentioned -- set to start in April. Any early tips you can give for someone looking to hit the ground running? What's the best way to learn about the industry so I have a clue of the big picture? Any technical skill recommendations to learn that are relevant in A&D? (Sql,python, vba?)

I'm glad to hear about the work/life balance as I practice violin and piano, but I do wonder if the lower title progression and salary relative to other industries will affect my thoughts in the future to come. What industry are you looking to jump to?

Feb 19, 2019

If you are in the FLDP then you aren't missing out on anything except maybe a few $k. In my FLDP most of the rotation opportunities are A&D specific (without a lot of transferrable experiences), but if you actively seek out the more transferrable rotations you'll still be ahead of your peers if you want to jump to a different industry. If you find you really like defense, then no issues at all!

As far as tips to hit the ground running- you can never have enough excel knowledge. Any amount of brushing up will be beneficial. I'd also try to learn about the business unit and product line you are joining, and about the products they build at your site (assuming it is a manufacturing site). Any of the product-specific acronyms you can learn ahead of time will speed the process of deciphering the acronym-heavy world of defense. I'd also try to find overviews of cost-accounting and cost-to-cost contracts. No need to dive too deep, just get a general overview to prep yourself. As far as technical skills, the only ones I've seen utilized in finance are macros and, obviously, excel. Some managers "ban" macros from being used because they are harder to follow and fix than an excel formula- the manager doesn't want to be too dependent on the person who wrote the macro. It always helps to learn more technical stuff, but it might not be directly utilized.

Personally, I haven't decided on which industry I want to jump to next. The city I want to settle down in long term has a big healthcare presence, so I've been investigating that industry. Manufacturing seems interesting to me, and I've seen multiple examples of young talent getting promoted quickly in the industry.. and usually manufacturing plants/companies are in low COL areas. That one might be the best transition given my experience.

    • 4
Feb 11, 2019

I haven't been in healthcare/pharma in ~5 years now but I can provide some thoughts. For simplicity sake I'll just use bullets.

  • Pricing and contracting is HUGE and extremely complex. Obviously, these are usually very profitable products so locking in pricing on multi year contracts with your networks is a very big deal and takes many months. What makes it even more important is global pricing regulations. For example, if Medicare will only buy drug X at your lowest price and you discount it $1 lower for someone else now you just gave medicare a $1 discount on the 3,000,000 units they buy. That's a straightforward example, but use the razor-razorblade model, if you give a free razor and sell 10 razorblades now 1/10 of a razor is the discount applied to each razorblade. To get even more (hypothetically) complex, imagine you sell razors, razorblades, shaving cream, soap and horses in varying quantities with varying pricing to 500 entities. Now what's your best price on 1 item?
  • Commercial teams are where the action is. For mature pharma in a non-R&D role it is all about sales/marketing/strategy. Profit Margins are HIGH so no one gets too bent out of shape on production costs (relative to other industries), its all about selling for the highest price.
  • R&D in pharma is a whole other ball game. I was at a large, mature company that was very conservative. We still had 1 study go bad on us (HUGE use expansion for en existing therapy) and we took a huge writeoff and had to lay off scores of people. At the lower end of the spectrum, many of those small biotechs are testing 1 therapy, literally boom or bust.
  • There's really no such thing as a market downturn in non-elective healthcare (botox, for example might be different). Recessions? 4.5% growth. Expansionary phase? 5% growth. It's an awesome place to be when the economy is choppy.
  • If you're serving large markets (selling healthcare equipment, generic drugs, biosimilars, etc...) the competition is TOUGH. It's one of the reasons (along with pricing) that ODD (Orphan Drug Designation) has become so sought after the last decade or so.
  • Speaking of ODD and FDA, regulation is a huge factor is success. The major players have a lot of resources invested in FDA interaction and lobbying. This doesnt really impact Corp Fin, but waiting on FDA rulings can be an interesting time.

I have to run to a meeting so I'll probably come back and edit this, but I wanted to get a response posted

twitter: @CorpFin_Guy

    • 13
Feb 11, 2019

Interesting overview- thanks for the response. How does, say, FP&A differ between your current industry (industrial) and pharma? Does Pharma/Healthcare finance seem to be faster, slower, or about average with promo cycles?

I'm particularly interested in this one- I'm considering the industry for my next jump.

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Feb 11, 2019

Industrials are so wide and varied that the markets are much more complex. My current BU (~$100M) sells into 8-12 submarkets. If Hypothetically Oil prices are down and US Infrastructure is down, but China Infrastructure and Off Shore Fishing in Finland are up, what does that mean to your business? The answer is VERY different based on what you sell, in what geography and to whom. Also, much more fragmented competition in Industrials.

That's very different than a healthcare market that's growing 5%, but there are 2-3 known competitors fighting for their piece of the pie.

Big Pharma, like any mature, conservative company, is generally fairly slow on the promotions. I've found the fragmentation and niche nature of Industrials has personally lead me to more opportunities. Don't get me wrong, Big Pharma can be a great career and being somewhere with high profit margins and consistant growth has significant benefits, but Industrials have allowed me upward mobility that Big Pharm/HC wouldnt have. For context I spent ~ 5 years in HC/Pharm I went from SFA to Mgr (about to be Sr. Mgr). In 4.5 years in Industrial I went from Mgr (hired to promote to Dir though) to CFO.

I'm definitely not trying to dump on HC/Pharma, I actually think its the better industry. I'd also start there at a junior level (more robust experiences and opportunities for early promotions), but there is more competition and more ceilings at those large companies. With some experience, I've found Industrials to be interesting, frustrating and rewarding.

twitter: @CorpFin_Guy

    • 2
Feb 11, 2019

More of a niche within an industry, but currently in operations finance within an industrial company. Putting this down as a placeholder but will add some color on how operations finance fits within the industrial FP&A umbrella

Feb 11, 2019

Can't contribute to the content but from a career trajectory perspective, have a dear friend who is CFO at a F200 co. Started Big 4 audit, hired by a client in industry X, MBA sponsored by that client. Stayed with that Co for several yrs. Worked his way up to be senior finance of a particular BU. Recruited away to CFO role of another company within the same industry. Has moved a few times, each time as a CFO, and each time within the same industry. He would be considered an expert in Corp Fin within the industry. Very much a vertical market for him. His different positions have varied by public vs. private, domestic vs. international, etc.

    • 1
Feb 12, 2019

Which industries are the best/worst to join at a graduate level if you want to do corporate finance for the long haul and work your way up the company or sector?

    • 1
Feb 13, 2019

There are certainly differences within industries, but I'd worry much more about the company than the industry. Especially for those early in your career I'd always look to join a blue chip company. An FLDP would be a significant bonus, but joining a good "brand" that hopefully has a focus on talent, training, development and promotions will set you up well for your career. If that happens to be in a hot industry or an industry that you have a particular interest in, that's icing on the cake.

twitter: @CorpFin_Guy

    • 1
Feb 20, 2019

Just saw this but posting to say that I will be back to add a write up on my experience in Tech and even some of the nuances between Ad based model (first tech experience) vs SaaS (what I currently do)

    • 1
Feb 20, 2019

Great. I'll add any additional info I think would be helpful on the SaaS topic as well when you post.

Feb 22, 2019

A little late to this thread but I'll throw in my $0.02. I work on the corp dev team on a F500 industrial distribution firm as an analyst. Previously, I was working in S&T before deciding that culture wasn't for me

  • Industry Dynamics - Distribution (not specific to industrials) is all about maintaining your margins. To make an extreme but easy to understand example, drug dealers are just distributors for drugs. Their profitability is all about their ability to pass along margins. That's why the most lucrative products are all the highly illegal ones, because they can pass along higher margins
  • Day to Day - My team is a hybrid between M&A/Treasury/IR. A selling point for me was to be able to be exposed to a few different buckets early on in my career. I'll split them out below.
  • Treasury - This is not unlike any other Treasury role so I'll keep it brief. There's a few people on my team that specifically handle invoicing and payments, but I work on the more strategic side of things like working on refinances. This is my least favorite of my job responsibilities as it's the most FP&A driven (have to forecast interest payments, etc.)
  • IR - I'm not extremely involved in this bucket at the analyst level, though my bosses are constantly in dialogue with institutional investors that have any questions about the company. My largest role is come earnings season where I help prepare materials that will help my CFO anticipate any questions he might get asked on an earnings call
  • M&A - This bucket is the one I'm most interested in but unfortunately also the least involved in. My company does not have a strong M&A culture and my boss used to work in PE so he drives most everything from models to dialogue. I'm looking to get more involved but we typically screen deals from regional firms, small mom-and-pops, and banks will occasionally
    pitch ideas to our desk
  • Everything Else - I think of my team as a support role for the CFO, we're his go-to as far as preparing anything for earnings, investor conferences, investor meetings, etc. We also get to participate on very strategic projects. Some of the stuff I've worked on determining how the business would be impacted by tariffs or a potential recession. I recently worked on how to optimize the capital structure. I get good exposure to the C-Suite for the aforementioned reasons but also because my team is responsible for sending out relevant industry/competitor updates where the C-Suite/Directors are all on the distro list

I should be getting back to work now, but I'll respond to any questions if people are still hopping on this thread

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Feb 22, 2019

I'm in a similar role in a different industry. Out of curiosity are you at a public company? I'm not sure if Treasury/M&A/IR hybrid teams are too common for public companies although I know GM has this model with their Treasurer's office.

Feb 22, 2019
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