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Day: March 7, 2020

Roles and Functions of Modern Investment Bank

Posted on by Imarticus Learning
Reading Time: 3 minutes

There are different types of financial institutions around the globe that helps people in various ways. One such type of bank is the investment bank. In this article, we will try to understand the importance of an investment bank and its functions and roles.

We will try to understand the services offered by the IB (investment bank). Let us first understand what is an investment bank?

What is an investment bank?

It is a type of financial institution which acts as a bridge between the securities issuer and the public investors. In layman terms, you can say that an IB works as a broker for clients. IB also specializes in pension funding. They help institutions to issue new sets of stock through an initial public offering (IPO) or follow-on offering. Besides helping financially, IB also gives advice and predictions in order to make the institution or any particular company rise more and more. Let us study the roles and functions of modern investment banks in detail.

Roles and functions of the Investment Bank

An IB has various roles ranging from advisory to mergers and acquisitions. Let us cover each of the roles thoroughly.

New stock issues

Whenever a company goes public, i.e. it seeks funding from the public and is ready to sell its shares. Then the IB helps those institutions by buying some of the agreed shares keeping in mind the IPO (initial public offering). This whole process of stock issuing is also called underwriting. So, in short, the funds/stocks from a private institution are transferred to the public through underwriting.

Advisory roles

Besides the money talk, investment banks help their clients by giving them advises advice which that brings more capital and investment. They help in taking the firm/institution to new heights. Investment banks boast a huge client base and are always helpful in financial queries.

Mergers and Acquisitions

Whatever the acquisitions are, an IB tries to find out its worth or current market value. It acts as a bridge for the deal to close in. They are helpful for the successful completion of a deal.

Risk analysis and management

A financial institution is always prone to difficulties. An IB helps in finding out the target area which is incurring losses. It helps in preparing a particular firm from various risks such as inflation, credit risks, liquidity, loans, etc. it always makes the firm less vulnerable to losses.

Research

Investment banks have come a long way, nowadays, they do research too. Through this research, one can find out the trustworthiness and loyalty of any particular firm. IB gives people the rating points of any particular firm which helps in deciding whether to buy, sell or hold any acquisition belonging to that particular firm/company.

Derivative product structuring

We are talking about modern investment banks here; they have now various services and functions to be offered. A derivative product mostly gives a high return rate and margin. To identify such worthy derivative and then structuring in such a way that it gives profit is often a tedious job, but it is done by the investment banks. They identify future derivatives and find the right time to invest. This helps the clients to increase their business.

Conclusion

As we read, modern-day investment banks have evolved a lot. Their services now range from consultancy to derivative product structuring. They also help various firms in getting a yes from the government for any particular project. They focus on various dealings and investments which helps the owner of any particular firm to focus on something else and take the company to new heights. This article was all about the roles and functions of modern-day investment banks.

How Do You Perform a Bottom’s Up Financial Analysis?

Posted on by Imarticus Learning
Reading Time: 3 minutes

The process of evaluating businesses, projects, budgets, and other finance-related transactions to check their performance and suitability is known as financial analysis. Also, evaluating economic behavior, build long-term plans for business activity and identify projects or organizations for investment comes in the purview of financial analysis. This is carried out using the combination of financial data and various statistical measures.

Financial analysis is generally done by professionals who prepare reports using ratios that make use of information taken from the balance sheet and other financial reports. The analysis reports are then presented to the top management for making informed business decisions. This analysis can determine if a business will continue or not, it also helps to make investment decisions in the targeted organization. The financial analysis process also entails financial data to assess a company’s performance and make a recommendation on the required improvements.

Financial analysts primarily carry out their work in Excel using a spreadsheet which helps to analyze historical data and make predictions about the future performance of the company. There are many different types of analysis which are used by the analyst for the evaluation of the company.

A proper financial analysis consists of five major areas which include revenues, profit, operation efficiency, capital efficiency, solvency, and liquidity. The final part of the financial analysis is to draw a comparison to determine if the performance is aligned with appropriate benchmarks. The first basis is the company’s historical records, to determine if the financial condition has improved or is it getting worse. The second basis is the direct competitors and the final basis is the contractual covenants.

Understanding The Bottom-Up Approach

Bottom-up financial analysis is an investment approach that has focuses on the analysis of individual stocks. A bottom-up financial analysis includes the price to earnings (P/E), current ratio, return on equity and net profit margin. It also considers the assessment of earning growth including future expected earnings. In a broad sense, the bottom-up approach starts with specifics and then moves to general.

The bottom-up approach invests in stock where the factors are positive for the company. Bottom-up investors believe in individual scrutiny, they are of the opinion that one company’s success in a sector does not necessarily mean that all the companies in that sector will follow the trend. These investors try to search out the companies that would outperform the others. This is the main reason why bottoms-up investor spends so much time analysing different companies. Bottom-up investors review the research reports on a company presented by the analysts because they have intimate knowledge of the companies given their assessments. Moreover, bottom-up investors will compare companies and invest in them based on their beliefs.

Bottom-up investors are those people who employ long-term strategies that rely on financial analysis. This is because this approach gives a deep understanding of a company and its stock value. Bottom-up investors can be most successful when they would invest in a company, they are familiar with on the grass-roots level. Google, Tesla, etc. are some good examples of this practice, because they have many known products/services that are being used frequently. When an investor looks at the company from the bottom-up approach his first thought is to understand the value from the perspective of the relevance of consumers in the real world.

Facebook is a good candidate for a bottom-up approach because investors understand the products and services well. Once a candidate like Facebook has been identified as a good prospect, an investor conducts a deep dive into the management, financial statement, marketing efforts and also the price per share which will include calculations of financial ratios for the company. Analysing how these figures have changed over time and projecting future growth is also an important aspect of this strategy.