Nuances of Corporate Finance in each Industry

dan_yo23's picture
dan_yo23 - Certified Professional
Rank: King Kong | banana points 1,945

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!

Financial Modeling Course

  • Get An Edge For Your Interviews & Finance Career
  • The Best (and Most Affordable) Financial Modeling Self-study Courses.
  • WSO Members receive a 15% discount

Comments (8)

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 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

    • 11
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.

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

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

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

twitter: @CorpFin_Guy

    • 1