What is Investment Banking?
These are the three classes of Investment Banks
Bulge Brackets, Middle Markets, and Elite Boutiques
This accounting method records revenue and expenses when transactions occur but before money is received or dispensed
Accrual Accounting Method
These are the three main valuation methodologies
Comparable Companies, Precedent Transactions, and Discounted Cash Flow (DCF)
A lily pad is growing in a pond and it doubles in size every day. After 30 days it covers the entire pond. On what day does it cover half of the pond?
29th Day
These are the three main sources of capita in an LBO transaction
Bank Debt, High Yield & Subordinate Debt, Equity
These are the two main Investment Banking Divisions
Corporate Advisory & Capital Markets
This financial statement summarizes cash inflows and outflows throughout a period of time
Cash Flow Statement
This valuation method is considered to be independent of the market and instead based on the fundamentals of the company
Discounted Cash Flow (DCF)
If a company carries no debt, what is its WACC?
Its cost of equity
This type of merger involves two or more companies that serve different value chain functions
Vertical Merger
Exposure to all industries is a benefit of this type of group
Product Groups
Walk me through an Income Statement
Revenue - COGS = Gross Profit - Operating Expenses = EBIT - Interest & Taxes = Net Income
This value represents the sum of additional cash flows beyond the forecasted period
Terminal Value
These cash flows are available to equity investors but not debt investors
Levered cash flows
This is a discount rate that makes the NPV of all cash flows equal to zero
Internal Rate of Return (IRR)
This team is focused on helping Private Equity firms raise capital for acquisitions by issuing Non-Investment Grade Bonds
Leveraged Finance (Lev Fin)
Deferred Revenue
This graph is used to display the different values acquired from all the different methods and states the mean valuation
Football Field
This metric is part of the Cost of Equity Formula and also measures the systematic risk of a security compared to the broader market
Beta
This type of merger involves companies directly competing in the same (or very similar) market
Horizontal Merger
This is a team focused on helping distressed companies reorganize their capital structure to avoid bankruptcy
Restructuring (Rx)
This report is filed whenever major events shareholders should know about take place
8K
Walk me through a DCF
Project Cash Flows for 5-10 years, Find Present Value of cash flows using WACC, Calculate Terminal Value using Perpetuity Growth or Exit Multiple Method, Add PV of cash flows and Terminal Value to arrive at Enterprise Value
(IS) EBIT down $10, Net Income down $7, (CFS) Net Income down $7 plus $10 Depreciation = increase in cash $3, (BS) Cash goes up $3, PP&E goes down $10, Net income of -$7 flows to retained earnings
This type of debt is know for having its principal paid off at the end ("bullet maturity")
High Yield and Subordinated Debt