What Is An Investment Banking Analyst?
An investment banking analyst works with an investment banking team and has skills in accounting, financial modeling, project financing, project valuation, and financial statement analysis. In addition, this analyst has deep knowledge of Excel, and they are good at VBA to analyze market data and financial modeling. The analytical work consists of building an economic model for different projects like infrastructure projects.
Investment banking analyst jobs also require them to stay up to date with current affairs in the financial world and regulations relating to them. An analyst must have a bachelor’s degree, work experience, and a keen learning urge for domains such as closing protocols, deal structuring, principles, and regulations.
Table of contents
- An investment banking analyst is a person who works with an investment banking team. They possess accounting, financial modeling, project financing, project valuation, and financial statement analysis skills.
- The analyst possesses in-depth Excel knowledge and is skillful at analyzing market data and financial modeling at VBA.
- The analytical work comprises making a financial model for infrastructure projects like power projects, real estate, etc.
- Financial modeling, project financing, merger and acquisition, leveraged buyout, and financial statement analysis are required to become an investment banking analyst.
The qualifications of an investment banking analyst are rigorous. It would help if one had most of the skills listed below: –
- Strong analytical skills
- Excellent in verbal and written communication
- Proficiency in PowerPoint
- Excel, Advanced Excel & VBA skills
- Bachelor’s 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).
Investment Banking Summary Video
The responsibilities related to investment banking analyst jobs include the following: –
- Provide valuation analysis, including discounted cash flows, relative valuations, asset valuations, comparable compsComparable CompsComparable comps are nothing but identifying relative valuations like an expert to find the firm's fair value. The comparable comp process starts with identifying the comparable companies, then selecting the right valuation tools, and finally preparing a table that can provide easy inferences about the fair valuation of the industry and the company., and 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 pitchbook 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..
- It is also in their job description too mentor and supervise junior analysts.
- Coordinate with clients for financial data and analysis.
- Travel for client meetings and industry research.
An analyst at an investment banking firm takes care of multiple things at the same time. It is a high-risk-high-reward job which is why the investment banking analyst salary is usually hefty. Let us understand the skills that would help an individual become a successful analyst.
#1 – Financial Modeling
An investment banking analyst job description requires them to help in developing a financial model from scratch.
The economic model has three general objectives that should be in someone’s back of mind before starting to write any Excel formulas or developing any assumptions. These are: –
- Coming up with an expected value Expected 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 risk assessment is the centerpiece of valuation and the fundamental reason for creating any financial model.
#2 – Project Financing
Project financing is to finance a project. The lenders provide money to the developers to develop a project by looking into the specific project’s risks and future cash flows.
The raising of on a limited-recourse or non-recourse basis to finance economically separable capital investment projects in which the fund providers look primarily to the cash flow from the project as the source of funds to service their loans. In addition, provide the return of and a return on their equity investment in the project.
#3 – Merger and Acquisition
An investment banking analyst would help the company in the process of decision-making during the process of merger and acquisition by analyzing the facts: –
- Know what they are buying – this often occurs 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 as 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 an LBO model: –
- Analyze the market value of a company.
- Deter the equity return through IRR calculation.
- Determine the cash flow of the company.
- Determine the debt service limitation of a company.
- Analyze 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. The financial statement analysis includes: –
- 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
Frequently Asked Questions (FAQs)
To become a good investment banking analyst, one must have skills such as readiness to work for 80+ hours per week, paying attention to every detail, and being able to control. Moreover, one must also possess skills such as teamwork, proficiency in Excel, PowerPoint, and Word, accounting and finance prowess, and sound financial modeling knowledge.
Investment banking analysts get fired all the time. However, anyone working in finance for their whole career may achieve success without hassle.
Becoming an investment banking analyst is challenging due to the profession’s stressful and demanding nature. Investment bankers often work over 80 hours weekly, follow strict regulations, and deal with high-pressure situations.
Yes, investment banking analysts may get vacation depending on how they balance their work and life, as their vacation may get interrupted due to critical work phone calls and emails.
This article is a guide to what is an Investment Banking Analyst. We explain how to become one by discussing their job description, qualifications, and skills. You can also have a look at these articles below to learn more about investment banking: –