Tag: investment banking course

Investment banking is a crucial part of the financial world. It plays a vital role in capital markets by connecting investors with businesses that require funding. Investment bankers are responsible for managing and executing complex financial transactions that facilitate capital formation, mergers and acquisitions, and corporate restructuring. In this article, we will explore the role of investment bankers in the financial world, what they do, and why they are important. We will also discuss how FMI’s investment banking pathway can help those interested in pursuing a career in this field.

What is Investment Banking?

Investment banking is a financial service that helps businesses and governments raise capital by underwriting and issuing securities. It also provides strategic advice to companies on mergers and acquisitions, corporate restructuring, and other complex financial transactions. Investment bankers act as intermediaries between issuers of securities and the investors who buy them. They help companies determine the most appropriate method of raising capital, whether through an initial public offering (IPO), debt issuance, or private equity.

Investment bankers are divided into two main groups: the front office and the back office. The front office is responsible for generating revenue and includes roles such as corporate finance, sales and trading, and mergers and acquisitions. The back office supports the front office and includes roles such as operations, risk management, and compliance.

What do Investment Bankers do?

Investment bankers are responsible for managing and executing complex financial transactions that facilitate capital formation, mergers and acquisitions, and corporate restructuring. They provide strategic advice to companies on how to raise capital, structure deals, and navigate the regulatory environment.

Capital Formation:

Investment bankers help companies raise capital by underwriting and issuing securities. They work with issuers to determine the most appropriate type of security, such as equity or debt, and the most appropriate method of issuance, such as an IPO or private placement. Investment bankers also help determine the appropriate pricing for the securities and market them to potential investors.

Mergers and Acquisitions:

Investment bankers provide strategic advice to companies on mergers and acquisitions. They help identify potential targets, negotiate terms of the deal, and structure the transaction. Investment bankers also help companies raise the necessary financing to complete the deal.

Corporate Restructuring:

Investment bankers provide advice to companies on corporate restructuring, such as divestitures or spin-offs. They help determine the most appropriate structure for the transaction, negotiate the terms, and assist with the necessary financing.

Why are Investment Bankers Important?

Investment bankers play a crucial role in the financial world by facilitating capital formation, mergers and acquisitions, and corporate restructuring. They help companies raise capital to grow their businesses, which in turn helps drive economic growth. Investment bankers also provide strategic advice to companies on how to navigate the complex financial landscape and make important business decisions.

Investment bankers are also important to the functioning of capital markets. They help ensure that capital is allocated efficiently by connecting investors with businesses that require funding. By doing so, they help ensure that capital is allocated to its most productive uses.

Investment bankers are also important to the stability of the financial system. They help manage risk by providing advice on the appropriate structure for financial transactions and by ensuring that investors have access to accurate and timely information about the securities they are investing in.

How can FMI’s Investment Banking Pathway help?

FMI’s Investment Banking Pathway is designed to provide students with the skills and knowledge needed to succeed in the investment banking industry. The program includes courses in financial analysis, valuation, and modeling, as well as exposure to real-world investment banking transactions.

The program also includes networking opportunities with industry professionals, including alumni and current investment bankers. Students have the opportunity to participate in industry events and attend workshops and seminars hosted by FMI’s Investment Banking Center.

Conclusion:

Investment banking is a crucial part of the financial world, playing a vital role in facilitating capital formation, mergers and acquisitions, and corporate restructuring. Investment bankers are responsible for managing and executing complex financial transactions that help businesses and governments raise capital and make strategic business decisions.

Investment bankers are important because they connect investors with businesses that require funding, ensure capital is allocated efficiently, and manage risk in the financial system. Without investment bankers, the capital markets would not function as effectively, and businesses would struggle to raise the capital they need to grow and expand.

For students interested in pursuing a career in investment banking, FMI’s Investment Banking Pathway can provide them with the skills and knowledge they need to succeed in this competitive industry. The program is designed to prepare students for real-world investment banking transactions and includes networking opportunities with industry professionals, making it an excellent choice for anyone looking to start their career in investment banking.

In conclusion, investment bankers play a critical role in the financial world by helping businesses and governments raise capital, facilitating mergers and acquisitions, and providing strategic advice on corporate restructuring. They are vital to the functioning of the capital markets, and their work helps drive economic growth and stability. For students interested in pursuing a career in this exciting field, FMI’s Investment Banking Pathway is an excellent choice that can help them gain the skills and knowledge they need to succeed.

Building a DCF Model from Scratch: A Step-by-Step Guide

A Discounted Cash Flow (DCF) model is a financial model used to value investment by estimating its future cash flows and discounting them back to their present value. It is one of the most popular valuation techniques used by investment bankers, financial analysts, and equity researchers to value companies, projects, and other investment opportunities. In this article, we will provide a step-by-step guide on how to build a DCF model from scratch.

Step 1: Understand the Basics of a DCF Model

Before building a DCF model, it is important to understand the basic components that make up the model. A DCF model is composed of three main sections: Cash Flow Projection, Discount Rate, and Terminal Value. The cash flow projection estimates the expected cash flows generated by the investment over a specified period, while the discount rate is the rate at which future cash flows are discounted to their present value. The terminal value is the value of the investment at the end of the projection period and is calculated using a terminal value multiple.

Step 2: Build a Cash Flow Projection

The first step in building a DCF model is to build a cash flow projection. This is done by forecasting the future cash flows generated by the investment over a specified period. The period could be five years, ten years, or more, depending on the investment being valued. The cash flow projection should include all relevant cash flows, including revenue, operating expenses, capital expenditures, and taxes.

To build a cash flow projection, start by gathering historical financial statements of the company or investment being valued. Use the historical data to estimate future revenue growth rates, operating margins, and capital expenditures. Once you have estimated the key inputs, build a detailed projection of future cash flows over the specified period.

Step 3: Determine the Discount Rate

The next step is to determine the discount rate to be used in the DCF model. The discount rate is used to discount future cash flows back to their present value. The discount rate should reflect the risk associated with the investment being valued. A higher-risk investment will require a higher discount rate, while a lower-risk investment will require a lower discount rate.

To determine the discount rate, start by estimating the risk-free rate. The risk-free rate is the rate of return on a risk-free investment, such as a U.S. Treasury bond. The risk-free rate serves as a benchmark for the discount rate. Next, estimate the market risk premium, which is the additional return required by investors to invest in a risky investment compared to a risk-free investment. Finally, estimate the beta of the investment, which measures the volatility of the investment compared to the overall market. The formula for the discount rate is:

Discount Rate = Risk-Free Rate + Beta x Market Risk Premium

Step 4: Calculate the Terminal Value

The next step is to calculate the terminal value. The terminal value represents the value of the investment at the end of the projection period. To calculate the terminal value, you can use the Gordon Growth Model or the Exit Multiple Method.

The Gordon Growth Model assumes that the company will continue to grow at a constant rate indefinitely. To calculate the terminal value using the Gordon Growth Model, use the following formula:

Terminal Value = (Cash Flow in the Final Year x (1 + Growth Rate)) / (Discount Rate – Growth Rate)

The Exit Multiple Method assumes that the company will be sold at a multiple of earnings or cash flow. To calculate the terminal value using the Exit Multiple Method, use the following formula:

Terminal Value = (EBITDA x Exit Multiple)

Step 5: Discount Future Cash Flows

The final step is to discount the future cash flows and the terminal value back to their present value. To do this, multiply each future cash flow by the appropriate discount factor, which is calculated using the discount rate. The discount factor for year n is calculated as:

Discount Factor = 1 / (1 + Discount Rate)^n

Once you have calculated the discount factor for each year, multiply it by the corresponding cash flow to calculate the present value of each cash flow. Add up the present value of all the cash flows to arrive at the net present value (NPV) of the investment.

Step 6: Sensitivity Analysis

Sensitivity analysis is a crucial step in building a DCF model. It involves changing the key inputs of the model to see how they affect the NPV of the investment. By doing sensitivity analysis, you can identify the key drivers of the investment’s value and assess the impact of changes in those drivers.

For example, you can test the impact of different revenue growth rates or different discount rates on the NPV of the investment. This analysis will help you to understand the risks associated with the investment and to make informed investment decisions.

Step 7: Conclusion

In conclusion, building a DCF model requires a thorough understanding of the basic components of the model, including cash flow projections, discount rates, and terminal values. By following these seven steps, you can build a DCF model from scratch and use it to value an investment. However, building an accurate DCF model requires a deep understanding of finance, accounting, and Excel, as well as the ability to make informed assumptions and conduct sensitivity analysis.

To gain a more comprehensive understanding of financial modelling and DCF models, it is recommended to take a course in financial modelling. FMI’s Introduction to Financial Modeling course is an excellent resource for students who wish to get into investment banking. The course covers the basics of financial modelling, including DCF models, and provides hands-on training in Excel. By taking this course, students can develop the skills they need to build accurate financial models and make informed investment decisions.

In conclusion, building a DCF model requires a lot of skill and practice, and this guide provides an overview of the key steps involved. Taking a course in financial modelling, such as the one offered by FMI, can help students develop the skills they need to build accurate financial models and succeed in the world of investment banking.

How can you earn a six-figure salary at top investment banking firms without any experience

On average, a first-year investment banker makes a 5-digit salary, in the range of $70,000 – $90,000, while a 7-digit salary is considered above average and is difficult to achieve for most people in their careers. A six-digit cheque hits the sweet spot in the middle, which fresh graduates strive for and can actually achieve. However, is it possible in your first year, to start without any experience? Let us find out. 

Break up of an investment banker’s salary

To understand how you can make six figures as a fresh investment banker, we first must understand how investment bankers make money. Unlike other industries, pay in investment banking is not a fixed, end-of-the-month salary. Instead, it is made up of several components and varies based on the parameters that define them. These components may vary from bank to bank, however, they are similar among the top global investment banks. 

  1. Base salary

The most important but not necessarily the largest component of the overall compensation is base salary. It is “salary” in the traditional sense. It plays a huge role in the overall compensation as other components are usually a percentage of the base salary. The base salary is generally paid biweekly, is stable, and increases each year. An investment banker’s performance does not influence this component unless there is a serious lack of productivity.

  1. Stub bonus 

Stub bonuses are a sub-component of the overall bonus structure but only represent a fraction of the usual bonus. These bonuses are paid to align employees with the financial year as investment banks recruit graduates in the middle of the calendar year. It is generally 20%-30% of the first-year base salary and is paid for a duration of four to six months. 

  1. End-of-year bonus

The end-of-the-year bonus defines your overall compensation as an investment banker. You will earn this after a full year of working. Analysts, associates, and senior bankers receive this sum entirely in cash or in the form of ESOPs. Two of the most important parameters used to determine the ‘end-of-year bonus are deal flow and overall individual performance. Year-end bonuses are again represented as a percentage of base salary.

  1. Stock-based bonus:

Associates, positioned above analysts, at publicly listed investment banks receive a part of their total bonus in the form of company stock, vested over a defined period of time. As an analyst, in most cases, you won’t be eligible for stock-based compensation. However, a few of the young investment banks have initiated stock-based compensation for fresh graduates as well. In such a case, stock-based compensation could be a significant part of your year-end bonus. 

  1. Signing bonus

When analysts accept full-time offers, they generally receive about $10,000 to $15,000, while associates receive $50,000 to $60,000 as signing bonus.

How to get a six-figure pay?

Now that you are aware of the compensation structure of an investment banker, you would realise that bonuses represent a big portion of the overall pay. A six-figure pay as a fresh graduate, in the first year, might not be possible solely based on your base salary but is certainly possible as your total compensation.

In order to earn this amount you must work hard on two things, first maximising your chances of getting a full-time job at one of the top investment banks and second, making a decent amount as bonuses. To get a full-time job you must focus on the following factors: 

  1. An impressive educational background: as a fresh graduate l, you don’t have experience and all the necessary skills required to be a top-class investment banker. Therefore, having good grades and completing your education at a tier-one university can give you an edge. Having done abridged courses related to economics, finance and business always add to your resume. 
  1. Required skill set and technical knowledge: You must be aware of the fundamentals of corporate finance, valuation methods, company and business evaluation, and the basic working of the industry. Moreover, you must have decent communication and presentation skills and must be willing to work hard and learn new things. 
  1. Experience in the form of internships: As a graduate, it is not possible for you to have a lot of job experience, however, you can make up for it through investment banking internships. Internships allow you to learn business practices and show your passion for the industry.

To improve your chances of getting higher bonuses, you must analyse the compensation structure of each investment bank, individually. In general, your base salary is the biggest determinant of your bonus, since bonuses are disbursed as a percentage of your base salary. In addition, other bonuses such as signing bonuses vary by bank and can be higher if you have a commendable academic record from a top university and a strong resume.

Conclusion

In the US, the average base salary for analysts is between $75,000 and $95,000 a year, and they may receive $40,000-$60,000 in total bonuses, depending upon the base salary, year-end bonus structure and the signing bonus. This takes the total remuneration to $115,000 to $150,00. Therefore, dedicated a first-year investment banker could make up to $140,000 in their first year, without any significant experience. It is important to note that some experience, in the form of internships, could help you break into the industry and get that full-time job. 

To learn more about investment banking and the working of the industry, check out the investment banking newsletter published by FMI. 

How you can get a front-facing role in a top investment bank without any experience

Keywords: top investment bank, financial institution.

Traditionally, job roles are divided into three categories, front desk, middle desk and back desk jobs. Front desk jobs are the face of the company, responsible for generating revenue. Job roles such as sales, trading, and product departments are part of this group. Middle desk positions are responsible for strategy making and ensuring that the company stays solvent, for financial institutions. Risk management and treasury roles generally fall under middle desk roles. Back office positions are job roles which provide support to these activities, positions such as accounting, compliance, and technology support come under back desk jobs. 

With changing organisational structures, technology incorporation and adoption of multi-disciplinary employee backgrounds, the line dividing front, middle and back-end positions are becoming blurry. As a result, these roles are changing with different financial institutions, geographies, and job responsibilities. This article will explore how you can get a front desk role in a top investment bank as a fresh face in the industry. 

Front Desk Jobs in Finance 

Before we dive into how to get a front desk job in a top investment bank, it is important to understand what is a front desk job in finance. In the financial services industry, unlike other businesses where the job role is limited to sales representatives or receptionists, front-desk employees generate revenue for the company by providing services directly to clients, such as wealth management or consultancy. 

Similarly, in investment banking, there are two main branches within the front desk roles, investment banking, and markets. As an investment banker, you would be required to make presentations and work with clients on M&A and capital-raising deals. You would also spend significant time networking to acquire new clients for the financial institution. Graduates or employees working in market-related roles, on the other hand, would perform sales, which involves selling investment products to the bank’s target customers, or trading and research activity.  

How to get a front desk role in a top investment bank

The process of getting a front desk role is very similar to getting any other job role in investment banking. It requires you to prepare and apply for your desired position, and develop the required skills. Moreover, since front desk roles involve dealing with large institutions directly, with millions of dollars and the bank’s goodwill at stake, the position places a great deal of responsibility on you. Therefore, you might spend your initial years working in a team before you could get a full-fledged front desk role. 

To improve your chances of getting a job you can refer to the following guidelines: 

  1. Get the right qualification

A relevant educational background helps you establish yourself as a worthy candidate for the role. Along with your degree courses, you can also commit to specialised courses relevant to front-desk investment banking roles. Bridge courses such as algorithmic trading, statistical analysis, and valuation of distressed assets are highly useful certifications to mention in your resume. 

  1. Develop the right skill set 

When going through a resume, recruiters look for skills pertaining to investment banking, or a trait that differentiates you. You must focus on both, the hard skills (career-specific), and the soft skills (personal skills) that are considered important in investment banking. 

  1. Get Internships 

Internships can help you demonstrate a deeper understanding of the job role and the working of the industry. They also show your willingness to dedicate time and effort to the chosen job role and the financial institution. Internships in business and equity investing and private equity are also considered useful. 

  1. Network 

Networking is one of the key tools that many people use to start their careers in investment banking. Making a good impression on people who can recommend you to recruiters or hire you will help you stand out and increase your chances of getting an interview.

Conclusion

To get a job at one of the top investment banks, it is important to first understand if you enjoy the job role and whether you possess the required skills. Most of the important skills required in investment banking can be developed over time. You can develop a better understanding of the industry by reading the FMI investment banking newsletter. Moreover, you must have a strong educational background, as a fresher, to enter the industry. An internship would be a huge differentiator and an added advantage.

How to Make a Successful Career in the Derivatives Market

The derivatives market is a huge industry within the financial sector. A large portion of the workforce involved in the financial markets is directly or indirectly associated with derivatives markets.  

Derivatives refer to any financial instrument whose value is linked to an underlying asset. In simple terms, the performance of the underlying asset dictates the performance of the derivative. For example, an equity futures contract of Apple Inc. would rise in price if the market participants are optimistic about the future performance of Apple – the underlying asset. There are multiple reasons for buying a derivative rather than the asset itself, speculation being the predominant one. Today, there exist various kinds of derivative instruments such as options, futures, swaps, and forex. 

In this article, we will discuss some of the career paths in the derivatives industry, and how you can prepare for them. Before we delve into these career paths, it is important to note that working with derivatives does not eliminate the need for financial analysis as one must evaluate the underlying asset to reap benefits from derivatives.

Job Profile in Derivatives:

There are three broad job roles in the derivative markets: 

  1. Derivatives Trader
  2. Derivative Operations Analyst
  3. Derivatives Risk Analyst

Derivative Trader

A derivatives trader conducts research and creates strategies to trade derivatives across fixed income, commodities, and equities with an aim to make a profit with price fluctuations. These include financial instruments such as interest rate swaps, total return swaps, fixed income and commodity futures, equity index options, and other credit derivatives. 

Moreover, a derivative trader evaluates trading strategies, improves trading practices, conducts portfolio analysis, creates performance reports, and maintains relationships with multiple brokers. This ensures efficient and timely execution of trading positions, and trade settlements, and improves accuracy in the cash flow of trades.

Qualifications required: 

In general, the following qualifications are required to become a derivatives trader, however, it varies with different financial institutions and the nature of work. 

  1. A bachelor’s degree in finance, economics, computers or mathematics. 
  2. Sound knowledge of corporate finance, fixed income, equities, and commodities.
  3. Understanding of financial markets and their working, including technical knowledge relevant to derivative trading, such as programming in VBA, R, SQL, Bloomberg, MS Office, etc.
  4. Other certifications, which improve your credibility, including CFA, CPA, and FRM.

Derivative Operations Analyst

Derivative operations analysts collect, analyse, and help process derivative lifecycle dealings for different types of products in order to support the derivative hedging team in the front office. Other major responsibilities of a derivative operations analyst include managing collateral of over-the-counter products, monitoring movement in margins for futures, coordinating and performing reconciliation of derivatives position and preparing periodic reports. 

Qualifications required: 

A derivative operations analyst should have the following qualifications:

  • A bachelor’s degree in accounting, finance, or business administration.
  • Sound knowledge of derivative instruments along with an understanding of investments and financial markets.
  • Strong organisational skills
  • Knowledge of relevant tools such as Microsoft office, Macros, etc.

Derivatives Risk Analyst

In addition to analysing different types of fixed-income strategies and yield curve positions, derivatives risk analysts evaluate macroeconomic developments. Among their responsibilities are developing a fair understanding of trading teams’ operations and strategies, monitoring risk limit consumption with VARs, and following up on breaches with the relevant office. They also communicate with senior management on daily and monthly transactions and P&Ls. 

The qualifications required to be a derivatives risk analyst are similar to that of a derivative trader, however, require more experience and knowledge of risk management tools. It is difficult for fresh graduates to start their derivatives career as a derivative risk analyst and requires a master’s degree or certification courses in risk management.

Conclusion

A career in the derivatives industry requires the capability to evaluate the underlying assets. Thus, an aspiring derivatives trader must have an understanding of corporate finance, financial analysis and working of financial markets, along with introductory or intermediate knowledge of technical analysis to understand price movements. Moreover, you need skills and qualifications that will help you navigate the dynamic and fast-paced financial markets. As a result, a job in the derivatives market can be very demanding and stressful but also offers lucrative compensation and growth opportunities.

What are the top investment banking internships you should be aiming for in 2023? 

Top investment banks open internship positions for young graduates every year. These internships attract thousands of applicants and generally have an acceptance rate between 1% and 1.5%, on average. Goldman Sachs received 236,000 intern applications in 2022 of which only 2,900 interns were selected. 

An investment banking internship from one of the top investment banks is a highly differentiating and admirable factor in a graduate’s resume. These internships will not only allow you to earn over $80,000 on a prorated basis over 10 weeks but will also improve your odds of landing a full-time investment banking job. In this article, we will explore the top investment banking internships that you can put on your radar in 2023. 

JP Morgan Chase 

JP Morgan Chase & Co. has its roots dating back to the late 1800s founded by the famous American banker JP Morgan Sr. The financial institute operates through two verticals: JP Morgan, focused on core investment banking, and Chase, which operates in consumer and commercial banking. 

JP Morgan offers an investment banking internship programme for a duration of nine to ten weeks. Internship requirements vary by programme but most require undergraduate students who have completed their first three years of study. If the candidate has enrolled for a master’s degree, they must pursue the internship within two years of a bachelor’s degree. Internship programs are available in the United States, Canada, India, Japan, Hong Kong, China, Singapore, the United Kingdom, Israel, Turkey, UAE, Australia, and major European countries. 

Goldman Sachs

Goldman Sachs is one of the top global investment banks with a rich history of over 150 years. The bank has one of the most competitive work cultures in the financial industry. Major divisions of the bank are financial advisory, underwriting, and investing portfolios. 

Goldman Sachs offers an eight to ten-week investment banking internship programme for undergraduate students who have completed their first or second year in a finance-related degree. As a summer analyst, young investment bankers get a chance to assist professionals in developing pitch books and mergers and acquisitions presentations. Under equity research, graduates work on company valuations, industry research, and collecting relevant data for senior bankers. Most internship programs are available in all major Goldman Sachs offices. 

Morgan Stanley

The investment bank traces its roots back to 1935 and is ranked highly for its advisory services in M&A and IPOs. Much like Goldman Sachs, the financial institution is known for being intensely competitive and is amongst the top dealmakers of the year.

Morgan Stanley offers an internship program for 10 weeks for undergraduate students who have completed their second or third year of study. Interns get to participate in analysing the financial performance of companies, presenting research, and assisting in mergers and acquisitions. The responsibilities vary based on the internship program. Interns can participate in internships from North America, the EU, and some Asian countries. 

Bank of America 

Bank of America is the second-largest U.S. bank, in terms of size, with a balance sheet size of approximately $3.1 trillion and is known for its soft and amiable work culture. The institution ranks the highest when it comes to diversity. 

Bank of America offers a variety of internship opportunities, for undergraduate and advanced degree students. Internship programs cover a broad range of departments from advisory to investment management. Summer interns are typically responsible for engaging clients, reviewing portfolios, assisting senior bankers with projects, and conducting financial analysis. The internships are available across the United States, Canada, Europe, the Middle East, Asia Pacific, and Latin America.

Conclusion

Internships significantly improve the chances of landing a full-time job. An investment banking internship from a reputable investment bank not only gives you valuable on-the-job experience but can also help you get a job in investment banking. Even though the application process is competitive, internships offer an excellent opportunity for bankers to gain insight, learn relevant skills, network and progress into full-time work. You should also have the relevant practical skills required in the industry to break through. The FMI monthly subscription to IB courses can help you gain that edge and consistently acquire new knowledge.