the nuts & bolts of investment banking: understanding key financial concepts andrea o’neal...

The Nuts & Bolts of Investment Banking:Understanding Key Financial Concepts

Andrea O’Neal & Patrice MitchellInvestment Banking Program Managers

Your Goals

• Become familiar with major methods of analysis used by investment bankers

• Build your vocabulary for investment banking concepts and jargon

• Have a foundation for using / understanding more complex resources

• Become more prepared for banking interviews

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FINANCIAL STATEMENT ANALYSIS

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Income Statement

• Summarizes revenue and expense streams related to business operations

• Used to evaluate health of company by determining profitability

• Snap shot of how efficiently company runs core operations

• Used as basis for future quarterly or annual projections in modeling

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Balance Sheet

• Summarizes assets, liabilities and shareholder equity (capital) of a company

• Used to assess capital structure and financial health – what company owns vs. owes

• Used in valuation methods to determine true worth of a company

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Statement of Cash Flows

• Summarizes sources and uses of company’s cash

• Cash categorized as operating, investing & financing

• Cash is lifeblood of company; used as basis for valuation (DCF)

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Commonly Used Terms & Ratios

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METHODS OF VALUATION

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Comparable Company Analysis

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Discounted Cash Flow Analysis

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Other Common Terms for Every Rock Star IB Intern

Analyst Top Responsibility Explanation“Valuation” – (i.e. Comparable Company Analysis (“Comps”), Discounted Cash Flow (DCF), Free Cash Flow (FCFF/FCFE) modeling

Financial analysis is at the heart of investment banking. Bankers build models to derive fair value of a company/asset based on several public, private and projected inputs

“Pitchbook / RFP” (Request for Proposal)

Presentation materials used for the purpose of attracting new clients or maintaining existing client relationships

“Live Deal” An active transaction where a client is pursuing a capital raising or M&A

“Roadshow” During a live deal, execs of the client may meet with prospective investors and sell the company’s unique investment story

“PIB” (Public Information Book) Compilation of a client’s publicly available information for banking teams’ internal use

“Prospectus” or “Red” Official deal document filed with the SEC 11

Preparation ResourcesThere are several ways for students to increase their candidacy for IB internships:

Increase market & industry knowledge. Actively learn terms, read financial news & form a unique opinion (not just copycat sound bites) to demonstrate understanding Beef up on technical ability. Take accounting & finance courses; hone excel, quick math and critical thinking skills Gain practical experience. Join business/finance focused campus groups, take a leadership role to put skills in practice Understand personal strengths. Be able to identify type of banking role that is the best fit; be able to concisely summarize personal strengths, experiences and assets that align with a great candidate for banking 12