Who is an Investment Banking Analyst?
Investment Banking Analyst works with investment banking team and expertise in the area of Accounting, Financial Modeling, Project financing, Project Valuation, and Financial statement Analysis. These analyst has deep knowledge in Excel and they are good at VBA to analyze the market data and financial modeling. The analytic work consists of building a financial model for different projects like Infrastructure projects (i.e Power projects, real estate, etc).
The key responsibilities of an Investment banking Analyst include the following –
- Provide valuation analysis including Discounted Cash Flows, Relative Valuations, asset valuations, Comparable comps, Transaction Multiple.Transaction Multiple.Transaction multiples or Acquisition Multiple is a method where we look at the past Merger & Acquisition transactions and value a comparable company using precedents. The method assumes that a company's value can be estimated by analyzing the price paid by the acquirer company's incomparable acquisitions.
- Prepare Pitch-Book for client meetings including M&A and LBO PitchBook
- Prepare financial models and perform financial analysis of companies relatively quickly.
- Assist the Investment Banking Associate with the coverage initiatives.
- Monitoring the industry for current events, valuations and important financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.
- Mentor and supervise the junior analysts
- Coordinate with clients for financial data and analysis
- Travel for Client Meetings and Industry Research
#1 – Financial Modelling
Investment banking Analyst helps in developing a financial model from scratch. Financial Model has three general objectives that should be someone back of mind before start writing of any excel formulas or developing any assumptions These are
- Coming up with an expected valueExpected ValueExpected value refers to the anticipation of an investment's for a future period considering the various probabilities. It is evaluated as the product of probability distribution and outcomes.
- Assessing the Risk of the investment
- Developing financial structureFinancial StructureThe financial structure refers to the sources of capital and the proportion of financing that comes from short term liabilities, short term debt, long term debt, and equity to fund the company's long term and short term working capital requirements.
Effective assessment of Risk is the centerpiece of valuation and most fundamental reason for any financial model is created.
#2 – Project Financing
The project finance is to finance a project in which the Lenders provide money to the developers for the development of a project by looking into the specific project’s risks and future cash flows.
The raising of on a limited-recourse or nonrecourse basis to finance an economically separable capital investment projects in which the providers of the funds look primarily to the cash flow from the project as the source of funds to service their loans and provide the return of and a return on their equity investment in the project.
#3 – Merger and Acquisition
Investment banking analyst would help the Company in the process of decision making during the process of Merger & Acquisition by analyzing the Facts
- Know what you’re buying – this often occurs in within industries or with a target that can leverage an existing business
- The buyer is acquiring from a position of strength, not weakness. Strength can be defined in terms of performance, management expertise, systems, culture, market leadership, etc.
- The worst deals occur in “hot” M&A markets or competitive bid situations (overpayment)
- A discipline of cash vs. stock
#4 – Leveraged Buyout (LBO)
Investment Bankers are expected to be great at LBO Modeling.
Steps to create LBO Model –
- Analyze the Market value of a company
- Deterring the Equity return through IRR calculation
- Determining the Cash Flow of the company
- Determining the Debt service Limitation of a Company
- Analyzing the Risk for the financial buyer.
#5 – Financial Statement Analysis
As an investment banking Analyst one should have the technical skills to analyze the Financial statement and the financial statement analysis include
- Net Operating Cash Flow
- Financing Expenditure
- Discretionary Expenditure
- External FinancingExternal FinancingAn external source of finance is the one where the finance comes from outside the organization and is generally bifurcated into different categories where first is long-term, being shares, debentures, grants, bank loans; second is short term, being leasing, hire purchase; and the short-term, including bank overdraft, debt factoring.
- Net Movements in Cash
- Short-Term Debt
- Dividend PayableDividend PayableDividend payable is that portion of accumulated profits that is declared to be paid as dividend by the company's board of directors. Until the dividend declared is paid to the concerned shareholders, the amount is recorded as a dividend payable in the head current liability.
- Tax Paid
- Bank Debt
- Equity Structure
- Interest Rate
The qualifications of an Investment Banking analysts are rigorous and you must have most of the skills listed below –
- Strong Analytical Skills
- Excellent in verbal and written communication
- Awesome in Powerpoint skills
- Excel, Advanced Excel & VBA skills
- Bachelors Degree in finance or accounting is preferable
- Ability to work under extreme pressure and tight deadlines.
- Passed CFA ExamsCFA ExamsThe Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. (or at least cleared CFA Level 1).
This has been a guide to Investment Banking Analysts. Here we discuss roles of an IB Analyst along with their responsibilities, skills, and qualifications. You can also have a look at these articles below to learn more about Investment Banking –