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Category: Investment Banking

How can an investment banking course advance your banking career?

Posted on by Imarticus Learning

Despite donning a rather plain appearance in its name, investment banking is a complex field. As a professional, you must know in detail about stocks and other instruments. Every instrument carries its set of unique features and complexities. And that’s not enough. You must also be aware of the regulatory landscape and much more. An investment banking course familiarises you with the concepts required to build a successful banking career.

By understanding complicated topics, you get an edge over your peers. The following sections give the information needed to take the right call. Check out how the course can give a boost to your resume.

Let’s get started!

Why is investment banking the foundation of a banking career?

investment banking courses

The most important quality of a successful investment banker is inquisitiveness. You must be curious to keep abreast of the latest market trends.

Investment banking develops this skill by compelling you to generate market insights. For this, you will have to closely monitor market trends, industry developments and market indicators.

Keep reading to know the reasons that make the study of investment banking important for your career.

  • Increases financial acumen: As an investment banker, you ought to deal with complex financial structures. This is why an investment banking course teaches intricate valuation methods and provides a detailed understanding of marketing dynamics. You can apply these concepts to other roles like credit analysis.
  • Teaches pressure management: Investment bankers operate under tight deadlines. By understanding the working environment, you learn the following skills. These skills prepare you for roles dealing with client service or project management.
    – Stress management
    – Multitasking
    – Time management
  • Exposes to regulatory standards: Investment banking demands adherence to strict financial regulations. By learning about these standards, you are prepared to take up roles that deal with the following aspects.
    – Regulatory compliance
    – Legal
    – Risk management
  • Teaches deal structuring: An investment banker is expected to design elaborate financial solutions. These include arranging the terms, financial components and conditions of transactions. You must perform these tasks according to the expectations of the client. This ability to craft tailored solutions with optimal outcomes for both parties helps in corporate banking.

How does an investment banking course unlock opportunities?

Now that you know the importance of this topic, let’s uncover more about it. In the following list, you will know how an investment banking course opens up the doors of many opportunities for you.

  • Familiarity with jargon: An investment banking course helps you become fluent in industry-specific lingo. As a fresher, terms like IPO, leverage and due diligence may scare you. By the end of the course, your fluency with such jargon will increase, thereby unlocking more recruitment opportunities.
  • Mastering data crunching: As an investment banker, you will be crunching data all day long. Through the course, you will learn the skills that make you a pro in handling financial transactions. These skills include the following:
    –  Analysing financial statements
    –  Building models
    –  Interpreting data
  • Networking: An investment banker builds connections with hundreds of people. By joining a course, you will connect with industry experts, insiders and alumni. This will expand your network to allow the best opportunities to come your way.
  • Improving presentation skills: One of the main roles of an investment banker is to sell ideas to clients. This involves making effective presentations and delivering them by demonstrating impeccable communication skills. Thus, a course will help you persuasively explain complex financial terms.

Get a competitive advantage in the industry by enhancing your skillset

Investment banking is rightly the foundation of several banking roles.

It builds your financial acumen, teaches pressure management and exposes you to regulatory standards.

You get opportunities to network with industry leaders while improving your persuasion skills. Imarticus Learning takes your journey forward in the right direction through its Investment Banking Course.

You can also explore other topics of your interest by visiting the official website of Imarticus Learning, the leading educational platform for professionals.

Green Finance and Sustainable Investing in Investment Banking

Posted on by Imarticus Learning

Investors ensure financial success by using various strategies for building and diversifying their financial portfolios. Green finance and sustainable investing in investment banking are increasingly attracting the attention of investors and businesses alike. 

Before we dive into the details of green finance and sustainable investing, their features, and advantages, let us understand what these terms mean. 

What is Green Finance?

Climate change is probably this century’s most defining economic and political issue and is here to stay for a while. Investors, governments, individuals, and businesses are taking action to combat the climate issue, particularly decarbonisation techniques. 

Green finance refers to investments or loans which promote environmentally-positive activities. This includes the construction of green infrastructure, purchasing eco-friendly goods and services, etc. Green finance is a mainstream phenomenon now protecting from ecologically destructive services and products. 

What is Sustainable Investing in Investment Banking?

Sustainable investing refers to different practices where investors and businesses look to achieve financial returns and promote long-term social and environmental values. 

Investors make better investment decisions and generate comprehensive analyses by combining environmental, social, and corporate governance (ESG) insights with conventional investment approaches. 

Sustainable investment in investment banking sees that business firms are judged not based on financial profits but on how and what they contribute to society. 

Understanding the ESG Factors in Sustainable Investing

The sustainability impact of an investment is evaluated using ESG factors. A typical ESG score consists of the following factors:

  • Environmental 

This includes the impact of a company on the environment. It includes water use, conservation, waste, carbon footprint, and clean technology that it creates and uses in its supply chain. 

  • Social

This is how a company or a business impacts society and how it calls for social change and good. Analysts keep a close watch and examine the stances and involvement of the business on various social issues. 

These issues include community engagement, human rights, employees’ health and safety, and racial diversity within inclusion and hiring programmes. 

  • Governance

Here we will see how a company or an exchange-traded fund (ETF) is ‘governed’ or managed to bring in positive change. 

This includes reviewing executive compensation and diversity, management and governing board quality, overall transparency and disclosure, shareholder rights, corporate political contributions, and anti-corruption. 

Along with ESG factors for sustainable investing, investors can also use other additional strategies. Some of them are as follows:

  • Impact Investing

Impact investing implies targeted investments aimed at solving environmental and social problems. Community investing is an integral part of impact investing. 

This capital is directed to underserved communities and individuals. Businesses working with clear environmental and social purposes also receive financing from impact investing. 

  • Activist Investing

Activist investing is purchasing company equity to change how it operates. Moral values often guide investment decisions or social or environmental causes that companies and their leaders believe in or think deeply about. 

For instance, individuals caring about global warming might show interest in a company that drives environmental change. 

Benefits of Green Finance

Undoubtedly, green finance brings environmental and economic benefits and advantages to everybody. It successfully transitions to a low-carbon society, resulting in socially inclusive growth. 

Let us take a look at some of the benefits of green finance.

  • Helps in adding business value

Businesses have a portfolio that they have to maintain and enhance. Green finance helps in enhancing the portfolio value of a business. Along with offering a green edge, the business can draw the attention of more environmentally-concerned customers and investors. 

  • Encourages the development of environment-friendly infrastructure and the spread of technologies

Governments create and develop infrastructure in most developing countries to improve long-term resource management. There are also attempts to channel the money from private sectors into local green markets. This step in investment banking provides a competitive edge to the business. 

  • Improves economic prospects 

Governments of countries promoting green financing help in protecting societies from resource scarcity. They build and encourage local markets for renewable sources of energy. They also work towards entering new markets, which have high employment potential. 

Conclusion

If you are looking to move up in your career in investment banking, you must learn the skills of green finance and sustainable investing. These new trends are taking the investment banking industry by storm, and their benefits for the economy, society, and environment at large cannot be overlooked. 

A professional investment banking course will pave the way for you to become an investment banker who is highly successful. Imarticus Learning offers a Certified Investment Banking Operations Professional programme for interested candidates. This certification in investment banking is ideal for finance graduates with 0-3 years of working experience. 

Along with a interview guarantee, the course offers live training modules, experiential learning, job-specific skills, extensive career support, and globally-accredited certification. A plethora of job opportunities open up on completion of the course. 

Visit Imarticus for further details.

Unlocking Value and Long-Term Returns: A Complete Guide to DCF Valuation and Investment Analysis

Posted on by Imarticus Learning

Discounted Cash Flow (DCF) Valuation is a widely utilized method in finance to effectively estimate the intrinsic value of investments. It is a valuation technique that considers the future cash flows of an investment and adjusts them for the time value of money. This analysis is particularly relevant in investment banking capital markets, where informed decisions regarding acquisitions and capital budgeting are made.

DCF valuation and investment analysis are among the many valuation techniques covered in comprehensive investment banking courses. These courses aim to provide individuals with a thorough understanding of various valuation methodologies, including but not limited to DCF analysis, Comparable Company Analysis, Precedent Transaction Analysis, and Leveraged Buyout analysis. Through the study of these courses, individuals can develop a comprehensive perspective on company valuation.

Professionals equipped with investment banking skills and knowledge are highly sought after in the competitive financial industry. Their proficiency in analysing investments and providing guidance on mergers and acquisitions allows them to play a pivotal role in shaping successful business ventures. As a result, individuals who possess these investment banking skills become invaluable assets in the ever-evolving world of finance.

Understanding the Time Value of Money

The concept of the time value of money (TVM) asserts that the present worth of a sum of money is greater than its future value, primarily due to its potential for earning over the interim period. This fundamental principle holds utmost significance in the field of finance. In simple terms, holding a specific amount of money at present carries greater value than receiving the same sum at a later date. 

Investment banking services play a crucial role in calculating the TVM for their clients and helping them make informed financial decisions. TVM is a fundamental concept in finance that states that a sum of money is worth more now than the same sum will be in the future due to its earning potential and the effects of inflation. Here’s how investment banking firms assist in calculating TVM:

Present Value (PV) and Future Value (FV):

Present Value (PV) and Future Value (FV) are important components of the time value of money. PV represents the current worth of money to be received in the future, while FV is the value of money after earning interest over time. Investors often prefer receiving money today as opposed to the same amount in the future due to the potential for growth through investments, such as the power of compounding interest. 

The formula for TVM:

PV = FV / (1 + r)^n

Where:

PV = Present Value

FV = Future Value

r = Interest rate per period (expressed as a decimal)

n = Number of periods (time)

 FV = PV * (1 + r)^n

Where:

FV = Future Value

PV = Present Value

r = Interest rate per period (expressed as a decimal)

n = Number of periods (time)

 

Discount Rate and Net Present Value (NPV):

The Discount Rate plays a crucial role in evaluating the time value of money, serving as the interest rate for determining the Net Present Value (NPV) of investment while considering the associated risk. NPV, which calculates the difference between the present value of cash inflows and outflows over time, serves as a tool for assessing the profitability of a project or investment. 

The formula for NVP:

NPV = ∑ {After-Tax Cash Flow / (1+r)^t} – Initial Investment

Internal Rate of Return (IRR):

Complementing NPV, the Internal Rate of Return (IRR) represents the discount rate that sets the NPV to zero and estimates the expected percentage return from an investment. In instances where NPV is zero, Excel can identify the IRR, indicating that the project breaks even with the cost of capital.

Cost of Capital:

The Cost of Capital represents the rate of return required by investors for providing capital to a company. It serves as the discount rate for investment evaluation, considering the risk associated with the investment

DCF Valuation Methodology

The DCF Valuation Methodology is a highly regarded investment banking financial modelling technique utilised in assessing the value of a business or investment by considering its projected future cash flows. The DCF analysis entails a series of crucial steps, such as the computation of Free Cash Flow (FCF), cash flow forecasting, terminal value estimation, selection of the suitable discount rate, and performance of sensitivity analysis. 

Let us delve into each step of the DCF Valuation Methodology in detail:

Free Cash Flow (FCF) Calculation:

Free Cash Flow (FCF) is an imperative element in DCF analysis, as it signifies the cash generated by a business that can be allocated to investors or reinvested into the operation. The calculation of FCF involves commencing with the company’s operational cash flows and making adjustments for capital expenditures and variations in working capital. 

The formula for computing FCF is as follows:

FCF = Operating Cash Flow – Capital Expenditures – Change in Working Capital.

Forecasting Cash Flows:

Forecasting cash flows is a crucial step in the DCF valuation process. Analysts project cash flows over 3 to 5 years, which significantly impacts the reliability of the valuation. Factors considered include revenue growth, operating expenses, capital expenditures, working capital changes, and tax rates.

Terminal Value Calculation:

DCF analysis extends beyond the forecast period, requiring estimation of the business’s value beyond that explicit period, known as the terminal value. Two common methods for calculating terminal value are the perpetual growth and exit multiple approaches.

Perpetual Growth DCF Terminal Value Formula:

Assuming continuous generation of Free Cash Flow at a normalised state, the perpetual growth terminal value is calculated as:

TV = (FCFn x (1 + g)) / (WACC – g),

where TV is the terminal value, FCFn is the final-year free cash flow, g is the perpetual growth rate of FCF, and WACC is the weighted average cost of capital.

Exit Multiple DCF Terminal Value Formula:

Based on observed comparable trading multiples for similar businesses, the exit multiple approach assumes the business will be sold for a multiple of a financial metric (e.g., EBITDA). 

The formula for calculating the exit multiple terminal values is:

TV = Financial Metric (e.g., EBITDA) x Trading Multiple (e.g., 10x).

Choosing the Appropriate Discount Rate:

In calculating the present value of future cash flows, it is crucial to discount them using an appropriate discount rate. This rate considers the time value of money, opportunity cost, and investment risk. The most commonly used discount rate in DCF analysis is the weighted average cost of capital (WACC), which accounts for both debt and equity costs.

Sensitivity Analysis:

Sensitivity analysis is necessary for DCF valuations to examine the impact of various assumptions on the final valuation. By testing different scenarios, analysts can understand the range of potential valuations and the sensitivity of the valuation to changes in key variables.

Components of DCF Valuation

Components of DCF Valuation

DCF analysis involves projecting future cash flows, discounting them to present value using a suitable discount rate (e.g., WACC). It also considers terminal value to estimate the company’s worth beyond the forecast period. Investment banking services rely on DCF analysis to ascertain the intrinsic value of investments or companies, facilitating informed financial decision-making.

DCF Valuation comprises the following key components:

Revenue Projections: Forecasting future sales and income based on market trends, demand, and industry outlook.

Operating Expenses: Costs for day-to-day operations, like salaries, rent, utilities, marketing, and other expenses.

Capital Expenditures (Capex): Investments in fixed assets or long-term projects, such as equipment, infrastructure, or production expansion.

Working Capital Changes: Impacts of current assets and liabilities on cash flow, like inventory increase or accounts payable decrease.

Tax Considerations: Calculating cash flows post-tax, considering tax rates and deductions.

DCF Models and Techniques

DCF models are commonly utilised in finance to assess investments, value businesses, and inform financial decisions. These models rely on projected future cash flows and discounted rates to determine present investment or company value. By utilsing DCF methods, analysts and investors can evaluate opportunities and make informed investment choices. 

DCF models and techniques include

Dividend Discount Model (DDM): This estimates stock value by calculating the present value of future dividends. Assumes the primary source of returns for investors is dividends, discounted using the required rate of return.

Cash Flow to Equity (CFE) Model: Focuses on cash flows available to equity shareholders. Calculates net cash flows after deducting interest expenses and debt obligations. Discounted using the cost of equity.

Cash Flow to Firm (CFF) Model: Estimates cash flows available to all capital providers. Considers equity and debt holders. Calculates free cash flow after accounting for expenses, taxes, capital expenditures, and working capital changes. Discounted using Weighted Average Cost of Capital (WACC).

Weighted Average Cost of Capital (WACC): This represents the average rate of return expected by the company’s investors. Considers proportion of debt and equity in capital structure. Used as the discount rate in DCF analysis. Reflects the company’s overall cost of financing.

Adjusted Present Value (APV) Model: Considers the value of potential tax shields or subsidies from financing decisions. Unlevered cash flows are discounted using the cost of equity to determine value without debt financing (NPV). Value of tax shields and subsidies added to arrive at APV.

Relative Valuation vs. DCF Valuation

Characteristics Relative Valuation DCF Valuation
Methodology The target company’s financial metrics and valuation multiples are compared with similar companies in the same industry to determine its value based on market sentiment and peer performance. This valuation method determines the target company’s intrinsic value using discounted cash flows, considering the time value of money and financial fundamentals.
Precision The approach may be less precise as it relies on generalisations and may overlook unique company characteristics. By considering cash flow projections, growth rates, and the cost of capital, it becomes more precise.
Basis The valuation process relies on market multiples and assumes that companies within the same industry should have comparable metrics. To accurately forecast cash flows, it is necessary to apply a discount rate that reflects the cost of capital, and then discount them back to the present.
Market Dependency Dependent on market sentiment and prevailing market multiples. Independent of market pricing and focuses solely on the company’s financial fundamentals.
Applicability Quick assessments and benchmarking in the market. Long-term investment decisions and in-depth analysis require sensitivity testing and scenario analysis.
Advantages Easy to understand and apply. Captures the current mood of the market. Provides a detailed and intrinsic valuation based on expected cash flows. Allows for sensitivity analysis.
Valuation Methods Comparable Company Analysis (Comps) and Precedent Transaction Analysis (Precedents). Discounted Cash Flow Analysis (DCF).

 

DCF Valuation is primarily ideal for:

  • Stable and established companies with predictable cash flows.
  • Long-term investment decisions backed by confidently projected cash flows.
  • Companies with distinctive characteristics deviating from comparable peers.
  • Rigorous analysis involving sensitivity testing and scenario assessment for risk evaluation.

DCF Valuation in Investment Decision-Making

DCF Valuation is a vital technique for investment decision-making, used in scenarios like business valuation, investment project evaluation, M&A analysis, and asset valuation. Investment banking firms rely on DCF Valuation to assess asset intrinsic value and inform financial decisions. 

Let us examine its application in these contexts:

Valuing a Business or Company: In investment banking, professionals use DCF Valuation to estimate the present value of a business based on its future cash flows. By projecting cash flows, selecting a proper discount rate, and determining a terminal value, investment bankers derive the company’s intrinsic value. This method is crucial for mergers, acquisitions, and equity investment decisions, offering a comprehensive and unbiased view of the business’s worth.

Evaluating Investment Projects: DCF Valuation is a commonly employed method for assessing the financial viability of investment projects. By discounting future cash flows to present value using an appropriate discount rate, investment bankers can determine the project’s feasibility and profitability. This analysis aids in identifying lucrative investment opportunities and informing strategic investment decisions.

Merger and Acquisition (M&A) Analysis: DCF Valuation is crucial in M&A deals for determining the fair value of the target company. Investment banking services leverage this technique to analyse synergies and the financial impact of acquisitions, enabling them to negotiate a purchase price and assess financial attractiveness for clients.

Valuing Equity and Debt Instruments: DCF Valuation is commonly used by investment banking firms to estimate the fair value of equity and debt instruments. For common stock valuation, projected future dividends are discounted to derive the intrinsic value. Similarly, future cash flows from coupon payments and the bond’s maturity value are discounted to determine the fair value of bonds.

Assumptions and Limitations of DCF Valuation

DCF analysis is a commonly taught valuation method in investment banking courses. It helps estimate the intrinsic value of an asset or business based on projected future cash flows and a discount rate. 

The common DCF Valuation assumptions and limitations are

Sensitivity to Projections: DCF analysis depends on assumptions made about future cash flows, discount rate, and terminal value. Slight variations in these inputs can significantly impact the calculated intrinsic value. Thus, the accuracy of the valuation depends on the reliability of these projections.

Forecasting Challenges: Accurately forecasting future cash flows is challenging due to uncertain economic conditions, market fluctuations, and projections for early-stage companies. These challenges may introduce inaccuracies in DCF valuation, influencing investment decisions.

Market and Economic Factors: DCF analysis assumes projected cash flows will continue into the future, ignoring potential changes in market dynamics, economic conditions, or competitive landscape. Unpredictable market and economic factors can impact company performance, reducing the long-term reliability of DCF projections.

Risk and Uncertainty: DCF Valuation may not fully account for all risks and uncertainties, such as unforeseen events, regulatory changes, or competitive threats. These factors can impact a company’s future cash flows and potentially introduce inaccuracies in the valuation model.

Real-World DCF Valuation Examples

  • Valuation of a Startup Company
  • Valuation of a Mature Company
  • Valuation of a Project or Investment
  • Valuation in Different Industries

DCF Valuation Best Practices

The following are the best practices for investment banking DCF valuation:

Gathering and Analysing Data:

When studying DCF Valuation in investment banking courses, it is imperative to grasp the significance of collecting and analysing pertinent data. This includes historical financial statements, industry trends, market data, and macroeconomic indicators. Thorough data analysis enables informed decision-making and the construction of robust valuation models.

Ensuring Consistency in Assumptions:

Students undergoing investment banking training should be aware of the importance of consistency in assumptions for DCF Valuation. Logical alignment and reliance on reliable data when making assumptions about revenue growth, profit margins, working capital, capital expenditures, and discount rates are paramount. Achieving consistency significantly improves the accuracy and reliability of the valuation model.

Communicating Results Effectively:

Efficient communication of DCF Valuation outcomes is emphasised in investment banking courses. The ability to articulate the methodology, assumptions, and sensitivity analysis in a clear and concise manner is vital. Visual aids, such as charts and graphs, can enhance the presentation and facilitate stakeholders’ understanding of the valuation’s implications.

Continuous Monitoring and Updates:

Investment banking training should stress the importance of continual monitoring and updates in DCF Valuation. Market conditions, business performance, and economic factors evolve over time, impacting the accuracy of projections. Regularly reviewing and updating the DCF model with the latest data ensures the valuation remains pertinent and reliable.

Conclusion

The DCF model is an essential tool used by various financial professionals to assess companies and make informed investment decisions. Students pursuing investment banking courses must master this model through a step-by-step approach, involving accurate cash flow forecasting and discounting. 

However, it’s important to acknowledge that valuations can be affected by uncertain assumptions and unforeseen events, which may impact cash flow projections. Therefore, the DCF model should be seen as one of several methods for investment analysis. 

Wandering how to get started with an investment banking course? Imarticus Learning is here to help!

Our Certified Investment Banking Operations Professional training program offers you a fantastic opportunity to acquire or enhance your investment banking skills. And that’s not all – we also provide investment banking internships with renowned recruiters.

At Imarticus Learning, we ensure that along with sharpening your skills through our robust investment banking course, you also receive an investment banking certification to facilitate your career progression in this field.

So why wait? Get in touch with us today!

Unveiling Capital Markets Explored: Navigating the Landscape of Investments and Funding

Posted on by Imarticus Learning

Capital markets allow individuals, companies, and governments to trade financial assets such as stocks, bonds, and commodities. In investment banking, the importance of capital markets is enormous as they play an important role in facilitating the flow of funds between investors and entities in need of capital. Investment banks also assist in raising funds through initial public offerings (IPOs), bond issuances, and other securities transactions, contributing to economic growth and corporate expansion.

Let us move forward with an in-depth analysis of the crucial investment banking fundamentals. We aim to offer comprehensive insights while exploring a range of relevant investment banking courses suitable for prospective candidates seeking to pursue this field.

What is Capital Market?

In investment banking, capital markets are financial markets where long-term debt and equity-backed securities are traded. These markets act as essential pathways for funds to flow between banks, investors, businesses, governments, and individuals. The main purpose of capital markets is to facilitate the transfer of wealth from savers to entities that can use it for long-term investments or projects.

Let us learn more about the structure of the capital market:

Primary Market vs. Secondary Market

The primary market, (or the new issues market), is the platform where companies publicly offer new stocks or bonds for the first time, often through an initial public offering (IPO). To facilitate these transactions, companies enlist Investment banking firms to review the securities and create comprehensive prospectuses that outline important details, including price.

Strict regulations exist in the primary market to ensure transparency and investor protection. Companies need to file statements with regulatory bodies like the Securities and Exchange Commission (SEC) and go through an approval process before becoming public. However, small investors may need more support to participate in the primary market. The primary focus is often on selling available securities quickly to meet volume requirements. 

In contrast, the secondary market consists of regulated venues, such as the New York Stock Exchange and Nasdaq, where previously issued securities are traded among investors. Issuing companies do not directly participate in secondary market transactions.

Within the secondary market, two categorisations exist auction and dealer markets. In auction markets, buyers and sellers congregate in a centralised location and publicly declare the prices at which they are willing to buy or sell securities. The New York Stock Exchange operates based on this method. On the other hand, dealer markets rely on electronic networks for trading. This is where most small investors typically participate.

To proceed with investment banking, financial modelling, it is crucial to analyse the important elements of capital marketing.

Types of Capital Markets

Types of Capital Markets

Let us learn about the different features of the capital market as well as the important types of capital markets that investors, organisations and governments deal with.

Equity Capital Markets (ECM)

Equity Capital Markets (ECM) cover a range of financial activities related to the insurance and secure trading of equity securities.

Initial Public Offerings (IPOs): Initial public offerings occur when a private company offers its shares to the public for the first time, becoming a publicly traded entity. Through an IPO, the company raises capital by selling shares to investors, who can then trade them on the secondary market.

Follow-on Offerings: These arise when an already publicly traded company issues additional shares to increase its capital. These offerings can take diverse forms, such as a seasoned equity offering (SEO) or a rights issue.

Rights Issues: The company provides current shareholders the chance to buy more shares at a lower price. This helps the company raise capital from its existing shareholders while allowing them to keep their ownership stake in the company.

Private Placements: These involve the sale of securities to a selected group of investors, usually institutional investors or accredited individuals, bypassing the general public. Private placements allow companies to raise capital without undergoing a public offering.

Equity-linked Securities: These hybrid financial instruments combine characteristics of both debt and equity. Equity-linked securities offer investors the potential for equity-like returns while possessing certain debt-like traits. For example – convertible bonds, exchangeable bonds, and warrants. 

Investment banking services work closely with companies, offering advice on the optimal timing and structure of IPOs, managing follow-on offerings, structuring rights issues, arranging private placements, and overseeing the issuance of equity-linked securities. 

Debt Capital Markets (DCM)

Debt Capital Markets (DCM) involve raising debt capital through various financial instruments and activities. Here’s an overview:

Bonds: Debt securities issued by entities to raise capital, representing a loan made by investors. Bonds have different features such as fixed or variable interest rates, varying maturity dates, and credit risk levels.

Commercial Paper: Short-term debt instruments used for meeting funding needs, typically issued at a discount by corporations, with a maturity of less than a year.

Syndicated Loans: Large loans provided by a group of lenders (syndicate) to finance projects or acquisitions. Risk and administration are shared among lenders, with loan terms structured by investment banks or financial institutions.

Convertible Bonds: Bonds that grant bondholders the option to convert them into the issuer’s common stock at a predetermined price. They offer the potential for equity participation while receiving fixed-interest payments.

High-Yield Debt (Junk Bonds): Bonds issued by companies with lower credit ratings carry higher default risks but also higher yields.

In Debt Capital Markets (DCM), investment banking firms assist companies in raising debt capital, providing advisory services, underwriting, structuring, and distributing debt securities to investors. 

Derivatives Market

Derivatives offer opportunities for risk management, speculation, and portfolio diversification. Investors, corporations, and financial institutions use them to manage exposure, protect against losses, or exploit market opportunities. However, proper investment banking training can aid in a successful transition and mitigate possible market risks. 

Options: Derivative contracts that provide the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) within a specified period. Options offer flexibility for hedging, speculation, or generating income.

Futures: Agreements to buy or sell an underlying asset at a predetermined price on a future date. Unlike options, futures contracts require both parties to fulfil the agreement. Futures are commonly used for hedging in commodities and financial markets to manage price risks.

Swaps: Contractual agreements between two parties to exchange cash flows or financial instruments based on predetermined terms. Interest rate swaps, the most common type, involve parties exchanging fixed and floating interest rate payments to manage exposure. Currency swaps and commodity swaps are other types.

Forward Contracts: Agreements between two parties to buy or sell an asset at a specified price on a future date. These contracts are customised and traded over-the-counter (OTC). Forward contracts provide flexibility in terms of contract terms and settlement.

Hedging Strategies: Using financial instruments such as options, futures, or swaps is a way to protect against potential losses caused by unfavourable price movements in an underlying asset. Hedging helps individuals or businesses reduce risks associated with changes in interest rates, exchange rates, commodity prices, or other market factors.

Foreign Exchange (Forex) Market

The Forex Market is the largest and most liquid financial market globally. Participants include banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex dealers. 

Important elements include:

Spot Market: It’s where immediate currency transactions take place at the current market price (spot rate). This is the most common form of foreign exchange trading.

Forward Market: Involves trading currencies for future delivery at a predetermined exchange rate through forward contracts. It helps manage currency risk and hedge against fluctuations.

Currency Swaps: These agreements involve exchanging interest payments and principal amounts on loans denominated in different currencies. Currency swaps help manage interest rate risk and obtain favourable borrowing terms.

Currency Options: Derivative contracts that give the holder the right, but not the obligation, to buy (call option) or sell (put option) a specific currency at a predetermined price within a specified period. Currency options provide flexibility for hedging or speculation.

Exchange Rate Risk Management: Strategies and techniques used to mitigate the impact of exchange rate fluctuations on financial transactions. This includes hedging instruments like forward contracts, currency swaps, and currency options.

Fixed Income Securities

Fixed Income Securities are investment instruments representing loans made to issuers (governments, corporations, or municipalities). They pay fixed interest over a specific period and return the principal at maturity. Mitigating risks requires proper investment banking skills.

Treasury Bonds: These are long-term fixed-income securities provided by the U.S. Department of the Treasury. They have durations of 10 to 30 years and are secure investments supported by the U.S. government.

Corporate Bonds: Debt securities issued by corporations to raise capital. Investors lend money in exchange for periodic interest payments and the return of principal at maturity. Corporate bonds carry varying levels of risk based on the issuer’s creditworthiness.

Municipal Bonds: Issued by state and local governments or agencies to fund public infrastructure projects. They can be tax-exempt and come in general obligation and revenue bond types.

Mortgage-Backed Securities: Represent ownership in a pool of residential mortgage loans. Investors receive cash flows from mortgage payments, providing exposure to the housing market.

Asset-Backed Securities: Backed by pools of assets like auto loans, credit card receivables, or student loans. Investors gain access to diversified income streams.

Difference Between Money Market and Capital Market

Here are the differences between the money market and the capital market:

Duration: Money market deals with short-term borrowing and lending, while capital market focuses on long-term investments.

Instruments: Money market involves instruments like commercial paper, while capital market includes assets like stocks and bonds.

Purpose: Money market addresses short-term liquidity needs, while capital market supports long-term funding and growth.

Risk and Return: Money market generally offers lower returns with lower risk, whereas capital market returns can be higher but with potentially higher risk.

Participants: Money market participants are often banks and financial institutions, while capital market involves investors, companies, and governments.

Market Maturity: Money market instruments have shorter maturity periods, while capital market securities have longer durations.

Regulation: Money market is closely regulated to maintain stability, while capital market has comprehensive regulations to protect investors and ensure transparency.

Example: Money market could involve trading short-term certificates of deposit, while capital market may include buying shares of a company’s stock.

Capital Market Functions and Real-world Examples

Let us learn about the important features of capital markets with the help of capital market examples.

Diversification Opportunities: Capital markets enable investors to diversify their portfolios by investing in a range of assets, like Google’s parent company Alphabet issuing bonds to raise capital.

Efficient Allocation of Resources: Companies can secure funding for growth projects, such as Amazon issuing stocks to finance expanding its distribution network.

Risk Management: Investors can hedge risks using derivatives like options contracts, exemplified when a farmer uses futures to lock in a price for their upcoming crop.

Access to Capital: Start-ups can raise funds for innovation, as seen with Uber going public to gain capital for its global expansion.

Global Connectivity: International companies can access funds globally, as demonstrated by Japanese automakers issuing bonds in the United States.

Transparency and Regulation: Capital markets are regulated, ensuring fair and transparent transactions, exemplified by the Securities and Exchange Commission overseeing companies’ financial reporting.

Long-Term Investment: Investors can engage in long-term strategies, like pension funds investing in government bonds to secure future retiree payments.

Price Efficiency: Efficient markets quickly reflect information, as seen when a company’s stock price adjusts rapidly to news about its earnings report.

Liquidity for Investors: Investors can sell shares in exchange for cash, illustrated when a retiree sells stocks to cover living expenses.

Funding Public Projects: Governments raise funds for public projects by issuing bonds, allowing citizens to invest in their country’s development.

Investment Banking in Capital Markets

Investment banking services play a prominent and vital role in the functioning of capital markets. Within investment banks, specialised divisions known as capital markets groups focus on offering a wide range of services revolving around the issuance and trading of securities in these markets. Such Investment banking skills are crucial for companies looking to raise capital and investors seeking opportunities to buy or sell securities in an efficient and regulated environment.

Here’s an overview of the components:

Underwriting Securities Offerings: Underwriting involves an investment bank assisting a company in raising capital by issuing stocks or bonds. Among the most sought investment banking careers, the underwriter commits to purchasing the securities from the issuer at a certain price and reselling them. This mitigates the risk of not selling directly to investors. The underwriter determines the offering price, assesses market demand, and ensures legal and regulatory compliance.

Pricing and Allocation Strategies: Pricing strategies determine the offering price based on market conditions, investor demand, and the issuer’s financials. Allocation strategies distribute securities fairly and efficiently, considering investor demand, regulatory requirements, and issuer preferences. Comprehensive investment banking training can help you learn the nitty-gritty of market price speculation.

Book Building Process: Underwriters determine the IPO price through book building. Institutional investors submit bids for shares and prices. The underwriter evaluates these bids to determine the final offering price. Book building is an efficient way to price securities.

Syndicate Management: In more extensive offerings, a syndicate is formed to share risk and responsibility. The lead underwriter or book runner leads the syndicate in marketing and distributing securities. Syndicate management includes structuring the offering, coordinating investor roadshows, managing the order book, and allocating shares to investors.

Capital Market Instruments

In investment banking, Capital market instruments are diverse financial instruments traded in capital markets. Here’s an overview:

Stocks: Represent ownership in a company, with potential capital appreciation and dividends. Traded on stock exchanges.

Bonds: Debt instruments issued by governments, corporations, etc. Investors lend money in exchange for interest payments and principal returns. Influenced by interest rates, credit ratings, and market conditions.

Derivatives: Financial contracts deriving value from an underlying asset or benchmark. Examples include options, futures, forwards, and swaps. Used for hedging, speculating, or gaining exposure. Can be complex and involve risk.

Mutual Funds: Investment vehicles pooling money from multiple investors, investing in a diversified portfolio managed by professionals. Offers diversification, professional management, and liquidity.

Exchange-Traded Funds (ETFs): Similar to mutual funds, providing intra-day liquidity. Can track various indexes, sectors, commodities, or investment strategies. Offers flexibility, diversification, and potentially lower costs compared to traditional funds.

Capital Market Regulation and Compliance

Capital market regulation and compliance are crucial for maintaining the integrity and stability of financial markets. Key entities include:

Securities and Exchange Commission (SEC): The SEC is responsible for regulating and enforcing federal securities laws in the US. It aims to safeguard investors, ensure fair markets, and promote capital formation.

Financial Industry Regulatory Authority (FINRA): FINRA, authorised by Congress, regulates broker-dealers in the US. It establishes conduct standards, administers licensing exams, performs exams and surveillance, and resolves investor-broker disputes.

Dodd-Frank Act: The Dodd-Frank Act was enacted following the 2008 financial crisis with the goal of improving financial stability, transparency, and accountability, while also safeguarding consumers. It introduced regulatory changes including derivatives regulation, the establishment of the Consumer Financial Protection Bureau (CFPB), and the Volcker Rule.

Basel III: Basel III refers to a set of global banking regulations developed by the Basel Committee on Banking Supervision (BCBS). The objective of Base III is to strengthen banks, enhance risk management, and promote stability in the global banking system through the implementation of stricter capital, liquidity, and leverage standards.

Market Abuse Regulations: These regulations aim to prevent market manipulation, insider trading, and other fraudulent activities. Investment banking services play a vital role in maintaining market integrity and investor confidence.

Capital Market Trends and Developments

Capital market trends and developments significantly shape the financial landscape. Key trends and developments include:

Sustainable and Green Financing: This involves financial products and services supporting eco-friendly and socially responsible initiatives. The growing focus on integrating environmental, social, and governance (ESG) factors in investment decisions drives the demand for sustainable investment opportunities. Green bonds and sustainability-linked loans are popular green financing instruments.

Fintech Innovations: Financial technology innovations are changing the financial services industry. Developments in areas such as artificial intelligence, blockchain, and digital payments are transforming different parts of capital markets, making them more efficient, accessible, and transparent.

Special Purpose Acquisition Companies (SPACs): SPACs garner substantial attention as publicly traded companies established to acquire or merge with other companies within a specified timeframe. They provide an alternative path to going public, bypassing the traditional IPO process. The SPAC market experienced some slowdown in 2022, with lower volume and underperformance of completed mergers.

Alternative Trading Systems: These platforms offer an alternative to traditional stock exchanges for securities trading. ATSs facilitate electronic trading outside of exchanges, promoting liquidity, broader access, and lower transaction costs. Buyers and sellers can connect directly through ATSs

Initial Coin Offerings (ICOs) and Cryptocurrency: Initial Coin Offerings (ICOs) are used to raise funds for projects that are based on blockchain technology. They allow the issuance and sale of digital tokens or cryptocurrencies in order to raise capital. Although ICOs have become popular in recent times, they have faced regulatory scrutiny due to concerns related to investor protection and fraudulent activities.

Alternatively, digital currencies like Bitcoin and Ethereum are continuously transforming, garnering attention from institutional investors and the establishment of regulations for their trading and safekeeping.

Conclusion

The capital markets are currently facing challenges and uncertainties, including economic slowdown, regulatory changes, and volatility. However, it’s important to acknowledge that there are opportunities for growth and investment. To navigate the capital markets effectively, individuals should adapt to regulatory changes, focus on quality investments, and stay informed about market trends.

Wandering how to get started with an investment banking course? 

Well, Imarticus Learning is here to help!

With a Certified Investment Banking Operations Professional training program, Imarticus presents you with a great opportunity to learn or level up your investment banking skills.

Wait, there’s more! How about investment banking internships with the top recruiters? 

Yes! Imarticus Learning makes sure that, along with honing up your skills with the robust investment banking course, you’re awarded an investment banking certification to make things a bit easier for your investment banking career journey. 

What are you waiting for? Get in touch!

FAQs

Is capital markets a good career?

Capital markets offer a great career for professionals as well as freshers who are looking for opportunities in the domain of investment banking.

What are the benefits of the capital markets?

Capital markets provide opportunities for organisations to raise funds for growth and expansion, while offering individuals a platform to invest and potentially earn returns on their investments.

Who controls the capital market in India?

The Securities and Exchange Board of India (SEBI) regulates and controls the capital market in India.

Decoding Financial Modelling: Building Insights for Informed Strategies

Posted on by Imarticus Learning

Financial modelling can be a vast term for those indulging in it for the first time. However, it is extremely beneficial and holds a vast amount of scope for enthusiasts. An investment banking course can be the right fit for professionals looking to upgrade in this field. 

At the same time, it encompasses multiple areas such as historical data processing, assumptions, and forecasting the financial future. 

Although financial modelling involves a multitude of options, it is always advisable to experiment and go for the best model for one’s business. When it comes to investment banking, financial modelling offers a clear pathway to calculate and predict a business’s finances. 

Although the modelling styles may differ, it all comes down to making informed decisions on areas such as the allocation of budget, and resources. The primary goal of investment banking, however, remains planning for the near and far future.

But how does one know if they’re cut out for financial modelling? Buckle up to understand how an investment banking course can benefit you. Additionally, you can invest in financial modelling to reap the best benefits.

What is Financial Modelling? 

Financial modelling includes reasoning and planning for the future based on current records and market conditions. It includes all facets of investment including allocation of budget, assigning different models, and predicting an output.

Financial modelling is a vital measure when it comes to planning out a proposed project. Through financial modelling, companies can benefit from previously-tested models of forecasting profit. At the same time, it can act as a soothsayer for new companies joining the market.

Let’s say a company is planning to invest in stocks but lacks the tools to do that. Financial modelling can prove to be essential at such a juncture. With financial modelling, executives can easily predict the outcome of a specific action as well as work towards the same thing. 

To understand more about the intricacies of this job, opt for certification in investment banking.

Purpose and Importance of Financial Modelling in Investment Banking 

Financial modelling is the perfect fit when it comes to investment banking. A career in investment banking can be rewarding depending on the multitude of projects at hand. Remember, that it includes decision-making, valuation, forecasting, capital budgeting, and investor relations. Here are just some of the reasons why they go hand in hand.

  • Valuation: When valuation is in the picture, it is easier to predict for companies to move forward with a clear-cut picture of their past performances. 

In a situation where the company is planning to invest in further outcomes, it is best to start with the valuation itself. But how does financial modelling help with valuation? 

It incorporates different variables like financial statements, and growth projections, concerning market conditions. In turn, companies can negotiate with definite figures.

  • Forecasting: It is no suspense that financial modelling can aid in forecasting investment returns in no time. Forecasting essentially helps out with a list of things such as projecting revenue, cash flows, and expenses. Apart from this, other important metrics are implemented for predicting future outcomes. 
  • Scenario analysis: Scenario analysis involves the prediction of an occurrence in the future marked by existing trends. It tells the investors about the areas in which their company is making a notable difference. 

This is ideal when assessing problematic situations and coming up with contingency plans. Imarticus’s Investment banking courses deal with troubleshooting as part of their curriculum.

Key Concepts in Financial Modelling

One of the advantages of going for investment banking internships is that it prepares you for the key concepts surrounding the job. The fundamental concepts of financial modelling include creating a process for determining expenses and earnings. These are further divided into these models:

Time Value of Money (TVM): The Time Value of Money concept constitutes one of the primary models of investment banking. The idea of TVM lies in the trend that a note worth 1$ in the market will transform multiple-fold more in the upcoming years. 

It is a popular principle in finance and is used to represent the present value of future cash flows and calculate loan repayments. Additionally, it serves as an essential testament to investing the right way.

Forecasting and Projection Techniques: Banking courses teach about the various types of techniques used by investment bankers in financial modelling including forecasting and projections models. 

These models include the straight-line method, simple linear regression, multiple linear regression, moving average, time series analysis, regression analysis, scenario and sensitivity analysis, and the Monte-Carlos simulation technique.

Discounted Cash Flow (DCF) Analysis: DCF analysis focuses on a popular technique that estimates future cash inflows and discounts them to their present-day value. It starts by estimating the revenue, expenses, and capital expenditures after which it exercises the weighted average cost of capital (WACC) or the capital asset pricing model (CAPM).

Sensitivity Analysis: Sensitivity analysis involves the part where the key figures in the financial model such as interest, and exchange rates are taken into account. These are then run using multiple scenarios with different sets of variables to determine the possible outcome of a model. A career in banking can require more of this type of analysis.

Scenario Analysis: Scenario analysis is another technique in financial modelling that determines the overall impact of a market condition on the business’s future. This technique involves enabling different scenarios to understand the financial results. 

The scenario analysis method helps professionals determine the impact of potential outcomes while making informed decisions at the same time. To do scenario analysis, one has to identify the key variables and change the assumptions with different financial models.

Monte Carlo Simulation: The Monte Carlo model is a computational simulation technique involving the usage of statistics to analyse complex systems. Its main objective is to rely on random events rather than calculated ones. For the Monte Carlo model to work, the numbers have to be randomised and chosen by an automated system and are repeated multiple times. 

Types of Financial Models 

Types of Financial Models 

Financial models can be separated using multiple factors some of which include financial planning and analysis. Others include valuation, forecasting, risk management, and merger & acquisitions. Here are our top picks for the financial models currently in use globally.

Three-Statement Model: The three-statement financial model is a model that predicts the outcome of financial statements like income, cash flow, and balance sheets. 

Starting with income statements, it overlooks the revenues, expenses, and net income over a certain period. The balance sheet offers an overview of the company’s financial position at any given period while showcasing the company’s assets and liabilities. 

The cash flow statement provides a tracking of the cash inflows and outflows in a specified time as well.

Merger and Acquisition (M&A) Models: To understand how mergers and acquisitions work, several models need to be understood. These include the Comparable Company Analysis (CCA), Discounted Cash Flow (DCF) model, merger consequences analysis and Leveraged Buyout(LBO) analysis. Others include transaction multiples analysis, accretion/dilution analysis, break-even analysis, and sensitivity analysis.

LBO (Leveraged Buyout) Models: The LBO model of financial analysis falls under the merger and acquisition model. It undertakes the analysis of the balance sheet, and the company’s inflows and outflows to determine the overall impact. 

The LBO model works with historical financial statements, purchase price and financing structure, debt schedules, and operating assumptions.

Discounted Cash Flow (DCF) Models: Discounted cash flow, as discussed above, is a financial model that offers valuation for a company by investigating future cash flows. It does so by discounting them from the current price. Its main tenets include forecasting future cash flows, determining the discount rates as well as the future cash flows, and calculating the terminal value.

Valuation Models: Financial modelling is made easier using valuation models such as the Comparable Company Analysis (CCA), and Precedent Transaction Analysis (PTA). 

Although both models are used in evaluating the value of the company, CCA primarily focuses on comparing financial metrics with other companies. On the other hand, PTA examines historical mergers or acquisitions to determine the current valuation of the company.

Budgeting and Forecasting Models: Several types of budgeting and forecasting models 

exist for appropriate prediction of the company’s future. 

These include but aren’t limited to traditional budgeting models, rolling forecast models, zero-based budgeting models, driver-based budgeting models, and Monte Carlo simulation. With these models, investment banking careers look bright for enthusiasts.

Building a Financial Model 

Working with a financial model is the first way to move towards building a successful company and establishing its rapport. An investment banking course with placement can teach about the various duties related to the job.

Data Collection and Assumptions: The first step to establishing a financial model is to collect all relevant data and make appropriate assumptions about the future. These include gathering past financial statements —income, cash flow-inflow and outflow, and balance sheet. Establishing these three helps give way to the entire process.

Setting Up Historical Financial Statements: After setting up data collection and making assumptions, it is now time to gather it and place it in sections. These should be done with the historical financial statements with the required format and structure for a clear presentation.

Projecting Future Financial Statements: Once the setting up process is established, companies can then move to a future financial activity. In doing so, the historical data, and assumptions are compiled to calculate the future revenues, cash flows, and all other expenses. The main idea of projection is to measure factors such as customer demand, competitive trends, and pricing.

Implementing Growth Drivers and Key Metrics: This is the part where growth drivers come into the picture. Several types of drivers are incorporated — new products, market share expansion, cost reduction techniques, and geographic expansion. 

Incorporating Debt and Equity Financing: It is seen in most cases that companies often rely on both debt and equity financing to fund their growth. Given the impact that these two can create, they can be beneficial to the growth drivers. Furthermore, businesses can easily access their capital structure, shareholder returns, and interest expense.

Calculating Valuation Metrics: Valuation metrics are one of the most-talked factors when it comes to investment banking. Some popular validation metrics include price-to-earnings ratio (P/E ratio), price-to-sales ratio (P/S ratio), and enterprise value-to-EBITDA (EV/EBITDA ratio). An investment banking certification teaches about the different metrics which can be utilised for better outcomes.

Financial Modelling Best Practices

Financial modelling can be a crucial set of tools and techniques for businesses. However, with time, it has been proven that finding the right financial modelling can require rigorous detailing and adherence. Here are some key points for finding the most effective model for any business:

Consistency and Clarity in Formulas and Formatting: Use only clear and consistent formulas throughout the chosen model. Go for cell references instead of hardcoding values, and other related calculations. Lastly, use straightforward labels and headings for easier navigation.

Using Sensitivity Tables and Data Tables: Sensitivity and data tables are two things that can be implemented to allow quicker access to different variables. Companies can utilise these tools for overall versatility and robustness.

Avoiding Circular References: Circular references are essentially going around in loops with no action. This occurs when the formulas keep referring to their cells thereby resulting in an infinite loop. It is best to maintain clarity by identifying and resolving circular references throughout the financial model.

Properly Structuring Input and Output Sections: One sign of a good structuring format is to separate both inputs and outputs according to the financial model. Input sections include things like revenues, costs, growth rates, and interest rates. On the other hand, output sections include results based on inputs.

Error Checking and Debugging: Financial models ideally include error-checking at multiple points. This is done in multiple regards —input values, and error alerts on incomplete and incorrect formulas.

Documenting Assumptions and Methodology: Clear documentation paves the way for faster presentation and access to the financial model’s activity. This includes retaining source data, the rationale used behind assumptions, and all of the formulas and calculations used through the model.

Excel Tips and Functions for Financial Modelling 

Some of the Excel tips and functions for understanding how financial modelling works are discussed below. Keep in mind that these can be highly efficient for making the most out of financial models.

Essential Excel Functions 

The essential Excel functions used in most financial models are:

  • SUM: The SUM function allows you to add a range of cells without manual counting. 
  • IF: The IF function allows for better logical testing. In return, it returns values for each outcome.
  • VLOOKUP: VLOOKUP allows users to search for a value in a particular column and return a corresponding value from a different column.
  • INDEX-MATCH: Like VLOOKUP, it is a combination of functions for generating the value in a certain range.

Advanced Excel Functions for Modelling 

Investment banking fundamentals include advanced Excel functions which are mentioned below with their functions:

  • NPV: To calculate the net present value of an investment or project by discounting future cash flows
  • IRR: To calculate the internal rate of return
  • XNPV: For calculating the net present value of cash flows that occur at irregular intervals
  • XIRR: To calculate the internal rate of return of cash flows that occur at irregular intervals

Data Validation and Auditing Tools

The different data validation and auditing tools included are:

  • Data validation: To ensure that the data meets certain criteria
  • Conditional formatting: For applying instant formatting to cells based on specific criteria
  • Error checking: For in-built error-checking provided by Excel; for additional troubleshooting

Excel Add-ins for Financial Modelling

Some essential Excel Add-ins for financial modelling include:

  • Solver Add-in: For finding the best possible values for different variables
  • Analysis ToolPak: For performing complex calculations and statistical analysis
  • Power Pivot: For creating data models and performing advanced data analysis

Financial Modelling for Different Industries

Financial modelling is a crucial aspect of valuation and forecasting in multiple industries. One of the best things about financial modelling is that it can be used in almost all industries because of its multidimensional functions. Let us learn more about how it is used in various industries with some financial modelling examples in different domains.

Technology and Startups: Startups rely on financial modelling for understanding the pattern and trends they must adapt to apart from relying on it for tracking balance sheets. Investment banking firms look for startups in the same way they do for larger tech companies.

Real Estate and Property Development: The real estate and property development business is outgrowing the current market. As a professional working in the real estate department, it is ideal to go for financial modelling to detect and analyse cash flows, RPIs, and net income. 

These financial models for property development involve various factors ranging from financing options, and rental rates to occupancy levels.

Energy and Utilities: Energy and utilities are one such area where financial modelling is effective. Starting with the financial impact held by rising energy prices, production volumes, and capital expenditures, it moves forward with ROIs and energy infrastructure projects.

Healthcare and Pharmaceuticals: The healthcare sector seeks financial modelling in terms of financial viability presented by drug development, healthcare services, and clinical trials. These financial models can trace costs related to research and development costs, patent life, reimbursement rates, along with demand forecasts.

Retail and Consumer Goods: Financial modelling can be of great help to retail and consumer goods in that it helps with assessing inventory management, and maintaining optional strategies throughout various activities.

Careers in Financial Modelling

Financial modelling plays a significantly large role in making informed decisions. Let’s discuss how one can make a potential career out of financial modelling in multiple fields.

Financial Modelling Roles in Investment Banking: The crux of investment banking is financial modelling. As a result, investment bankers use it to analyse and evaluate financial data related to corporate finance transactions. 

Financial Analyst and Financial Planning Roles: The roles and responsibilities of a financial analyst and financial planner go hand in hand. Both of these roles require generous functioning of forecasting, valuation, and developing strategies.

Financial Modelling for Private Equity and Venture Capital:

Private equity firms and venture capital funds heavily rely on the financial modeling and evaluation of the viability of projects as well as for assessing ROIs.

Financial Modelling in Corporate Finance and Strategy: In the corporate finance sector, financial modelling can aid analysis of different situations including forecasts.

Conclusion 

Financial modelling can be extremely beneficial to those looking for an enriching experience when it comes to the investment banking market. 

The market is never too dull for an investment banker as it encompasses several unique experiences surrounding market trends and changing statistics.

Now that we have established the importance of financial modelling, let’s move over to the investment banking training offered by Imarticus Learning for finance graduates. The Certified Investment Banking Operations Professional course incorporates some of the most sought-after parameters in investment banking.

For instance, it encompasses chapters focusing on risk management, regulatory compliance, valuation, and trade life cycles within the financial models. The USP of this program is that it relies on a practical approach as opposed to a strictly theoretical approach.

Go for the program today and become an investment banker today!

FAQs

What is 3-way financial modelling?

Three-way financial modelling involves creating a comprehensive spreadsheet that integrates the income statement, balance sheet and cash flow statement, the three main financial statements, to project a company’s future financial performance and position.

How can I do financial modelling?

To start financial modelling, you can start gathering financial data that is available and build spreadsheets that link income, balance, and cash flow, and then analyse the results to make informed business decisions. You will also need to learn data visualization in Excel as well as the fundamentals of accounting. 

What is financial modelling for MBA?

Financial modelling for MBA involves learning how to use quantitative techniques for analysing and projecting a company’s financial performance, thus aiding in decision-making and strategy formulation.

Which tool is used for financial modelling?

Excel is one of the most used tools for financial modelling. It is great for data visualisation as well.

Which is better CFA or financial modelling?

This truly depends on your career goals. CFA is more recognised for investment and financial analysis, while financial modelling offers specific skills in projecting financial scenarios, financial feasibility and analysing business situations.

Does MBA teach financial modelling?

Yes, but it depends on the type of MBA the student is going for. For example, an MBA in marketing might not cover financial modelling but an MBA in Finance will cover the principles of financial modelling.

Mastering the Art of Investment Banking: Processes, Planning, Models and Real-World Examples

Posted on by Imarticus Learning

Investment banking offers a captivating career in finance, serving as a vital player in the financial world. With its significant role in facilitating major transactions and offering strategic advice to diverse industries, this field presents rewarding opportunities.

Let us take a look at what is investment banking and the many possibilities awaiting you in the world of investment banking careers.

What is Investment Banking?

Investment banking encompasses extensive financial services primarily centred around raising capital and offering counsel to corporations, governments, and affluent individuals. Engaging in transactions within the capital markets can be intricate, with numerous regulatory challenges to overcome.

Consequently, corporations and various entities frequently enlist the assistance of investment banks to facilitate these processes.

Recognizing what is investment banking and the opportunities it offers to shape successful financial transactions and business strategies through specialized services is important to make a great career in the field of banking.

Investment Banking Functions and Operations

An investment bank is like a middleman between investor and issuer and helps clients raise money through debt and equity offerings.

IPOs (Initial Public Offerings)

  • Companies hire investment banks to issue IPOs and raise capital.
  • Investment banks assist in underwriting, setting offer prices, and creating a market for the stock.

Mergers and Acquisitions (M&A)

  • Investment banks facilitate M&A deals between companies.
  • They play critical roles in valuing companies, strategising the merger process, and raising funds for M&A transactions.

Risk Management

  • Investment banks help manage financial risks like currency, loans, and liquidity.
  • They identify loss areas and control credit risks for effective risk management.

Research

  • Equity research is vital for providing company ratings to aid investor decision-making.
  • Investment banks offer research reports on companies’ performance and market trends.

You can play a vital role in shaping financial markets and supporting businesses through a career in investment banking. Understanding what is investment banking and exploring diverse functions and opportunities to excel in this dynamic field will help you become an efficient Investment Banker.

What is Investment Banking’s Role in the Financial Industry

Investment banking professionals are critical in stock offerings, SEC documentation, M&As, and guiding clients toward lucrative investment opportunities. They ensure smooth execution and handle essential financial and ownership details.

Investment Banking Course

Key Players in Investment Banking

Key players in investment banking include investment banks, corporate clients, institutional investors, retail investors, regulatory authorities, private equity firms, hedge funds, venture capital firms, law firms, and rating agencies. They collaborate to facilitate financial transactions and provide strategic advisory services in the industry.

Core Investment Banking Services

Mergers and Acquisitions (M&A)

M&A, an integral facet of investment banking services, revolves around the convergence of companies through multifaceted transactions encompassing acquisitions, mergers, divestitures, and joint ventures. Investment banks play a pivotal role in guiding clients through these intricate deals.

These financial institutions undertake comprehensive valuation analyses, meticulously identify potential targets or buyers, adeptly negotiate agreements, and astutely oversee the entire process to ensure seamless execution. The realm of Mergers and Acquisitions demands intricate understanding, financial finesse, and astute strategising. Investment bankers leverage their expertise to craft advantageous deals, optimise synergies, and mitigate risks for their clients.

Delving into the intricacies of M&A, investment banks facilitate strategic decisions that reshape industries and redefine business landscapes. By offering insights, market intelligence, and transactional prowess, they empower clients to navigate the complex terrain of M&A with confidence.

Find out more about mergers and acquisitions here.

Capital Markets and Fundraising

In investment banking services, companies receive valuable assistance in raising capital through diverse avenues, such as issuing stocks, bonds, and other financial instruments. Investment banks excel in structuring these offerings, setting optimal pricing, and identifying suitable investors.

Additionally, investment banks play a crucial role in facilitating secondary market transactions, enabling the smooth buying and selling of securities on stock exchanges. To be highly sought after by companies worldwide, understanding what is investment banking specializations like capital markets and fundraising are essential.

Fundraising is crucial for both governments and private companies when they are in need of funds or a stable cash flow for various projects or for future endeavours. Investment bankers are also essential for guiding companies when investing in other companies or external projects.

Financial Modelling

Financial modelling is a core aspect of investment banking services, involving the creation of detailed numerical representations of a company’s financial performance. Investment banks utilise these models to forecast future financial scenarios, analyse investment opportunities, and assess the potential impact of various strategies and decisions.

Financial models encompass a range of elements, including revenue projections, expense forecasts, cash flow analysis, and scenario simulations. Investment banks employ advanced software and tools to build and manipulate these models, allowing them to make informed recommendations to clients.

Financial modelling also helps in simulating business scenarios or probable profit and loss based on different financial decisions or combinations of business decisions.

Find out more about what is investment banking’s role in financial modelling here.

Valuation and Investment Analysis

Within the realm of what is investment banking services, valuation and investment analysis are key components. These practices involve the meticulous assessment of assets, companies, and investment opportunities to determine their intrinsic worth and potential for generating returns.

Investment banks employ various methodologies for valuation, such as discounted cash flow (DCF) analysis, comparable company analysis (comps), precedent transaction analysis, and asset-based valuation. 

By learning what is investment banking valuation methods, investment professionals scrutinise financial data, market trends, and industry benchmarks to arrive at accurate and well-founded valuations.

Analysing investments is essential for businesses and governments to find out if a certain business or financial investment can cause future losses, thus being able to help organisations avoid financial loss or achieve profitability.

Find out more about what is investment banking analysis and valuation methods, such as DCF valuation, here.

Other Essential Investment Banking Services

Corporate Finance and Advisory Services

Investment banks deliver specialised financial counsel to corporations concerning corporate restructuring, capital allocation, financial risk management, and broader financial strategies.

These tailor-made services cater to each client’s unique requirements and frequently entail in-depth financial analysis and extensive market research.

To excel in this field, consider learning what is investment banking and getting trained and certified for comprehensive expertise.

Underwriting and Securities Offerings

Investment banks offer underwriting services for companies launching new securities like stocks or bonds. Underwriting involves selling these securities to investors, with the investment bank bearing the financial risk.

Financial Restructuring and Debt Advisory

Financial restructuring involves a carefully planned strategic overhaul of a company’s capital structure and operations to tackle economic difficulties and avoid bankruptcy.

The main goal is to maximise the efficient utilisation of financial resources and improve the company’s financial health.

This multifaceted process includes various essential components:

  • Debt restructuring
  • Equity infusion
  • Asset sales and divestitures
  • Cost-cutting measures
  • Business reorganisation

What is Investment Banking Process and Transactions

Deal Lifecycle in Investment Banking

Investment bankers begin by identifying potential opportunities and establishing client relationships. Deal origination methods include networking, referrals, market research, and leveraging industry expertise.

Due Diligence and Deal Structuring

After securing the mandate, investment banks conduct comprehensive due diligence on the client’s business, financials, and market position. It aids in structuring the deal appropriately determining suitable financial instruments, pricing, and transaction terms.

Negotiations and Closing Processes

Investment bankers initiate negotiations with potential buyers, sellers, or investors, finding common ground on price and deal specifics. Once a consensus is reached, the deal is executed through legal agreements and contracts.

Post-Deal Integration and Management

After closing the deal, investment bankers may assist with post-merger integration (M&A) or ongoing management of issued financial instruments. Post-deal integration ensures a seamless transition and maximises transaction benefits.

Throughout the deal lifecycle, investment bankers offer clients strategic guidance, financial expertise, and market insights. They collaborate with stakeholders, including legal teams, regulators, and financial institutions, ensuring compliance with relevant laws and regulations.

To understand what is investment banking and gain expertise in its fundamentals, consider enrolling in comprehensive training and banking courses.

Investment Banking in Different Sectors

Investment banking is vital across diverse industries, facilitating crucial financial activities and providing strategic advice.

Here is a brief overview of what is investment banking’s significance in specific sectors:

Investment Banking in Technology and Startups

In this dynamic sector, investment banks support startups and tech companies with capital raising, mergers, acquisitions, and strategic advisory services, empowering innovation and growth.

Investment Banking in Real Estate and Infrastructure

Investment banks enable real estate developers, investors, and infrastructure firms to raise funds, structure deals, and execute transactions for projects, driving progress and development.

Investment Banking in Healthcare and Pharmaceuticals

In the healthcare industry, investment banking aids pharmaceutical, biotech, and medical device companies with IPOs, mergers, licensing deals, and partnerships, fostering advancements in medical research.

Investment Banking in Energy and Utilities

For energy companies, investment banks provide financial services, including project finance, M&A, and capital raising, supporting the growth and expansion of renewable energy initiatives and traditional utility operations, thus contributing to sustainable energy development and meeting global energy demands.

Investment Banking in Consumer Goods and Retail

Investment banks in consumer goods and retail provide financial services, including M&A, IPOs, and strategic advisory, supporting business growth and competitiveness in this sector.

Investment Banking Regulatory Environment

Role of Regulatory Authorities in Investment Banking

Governmental organisations, known as regulatory bodies, uphold the laws and ordinances that apply to investment banks and other financial organisations. They are responsible for encouraging transparency, safeguarding customers and investors, and stopping systemic hazards in the financial system. The SEC in the US and the FCA in the UK are two examples.

Compliance and Legal Considerations

Investment banks must adhere to various regulations covering securities offerings, disclosure requirements, trading practices, anti-money laundering (AML) measures, and data protection.

Dedicated compliance departments within investment banks ensure strict adherence to these regulations and internal policies. Non-compliance may lead to penalties, fines, and damage to the bank’s reputation.

Basel III and Capital Adequacy Requirements

Basel III represents a set of international banking regulations formulated by the Basel Committee on Banking Supervision. It aims to enhance banks’ resilience by strengthening risk management and raising capital adequacy requirements.

These regulations establish minimum capital standards, including shared equity, Tier 1 capital, Tier 1 capital, and total capital, to ensure banks possess sufficient money to withstand financial shocks and maintain stability.

Market Regulations and Risk Management

Being aware of what is investment banking activities that are subject to regulations covering market manipulations, insider trading, and the use of complex financial instruments like derivatives is crucial.

Investment banks must implement robust risk management practices encompassing credit, market, operational, and liquidity risks to ensure compliance.

What is Investment Banking Operations and Back-Office Functions

Trade Settlement and Clearing

Trade settlement and clearing are essential processes in the post-trade phase of financial transactions. After the trade is executed, settlement involves the exchange of cash and securities between the buying and selling parties. Clearing consists of confirming, matching, and validating trade details to ensure accuracy.

Investment banks use clearinghouses and custodian banks to facilitate these processes, which are crucial for reducing counterparty risk and ensuring the timely and accurate completion of trades.

Transaction Confirmation and Reconciliation

Transaction confirmation validates trade details sent to both parties to ensure agreement. Reconciliation compares data from various sources, resolving discrepancies to maintain accuracy and data integrity.

Operations Risk Management

Operations risk management aims to identify, assess, and mitigate risks related to investment banking operations. It includes risks associated with processing errors, technology failures, data breaches, fraud, regulatory compliance, and other operational aspects.

Robust risk management practices are essential to prevent financial losses, reputational damage, and regulatory sanctions.

Trade Support and Middle Office Functions

The middle office in investment banking supports the front-office activities (e.g., traders, sales, etc.) by providing risk management, trade support, and analytics.

Middle office functions may involve monitoring and managing market, credit, and operational risks associated with trading activities. It also handles collateral management, ensuring sufficient collateral for trading activities and mitigating counterparty credit risk.

For a rewarding career in banking, consider getting a comprehensive grasp of what is investment banking by pursuing an investment banking course to gain valuable knowledge and skills essential for this dynamic industry.

What is Investment Banking Technology and Digital Transformation 

Fintech Innovations in Investment Banking

Fintech has revolutionised investment banking with online platforms for capital raising, peer-to-peer lending, and alternative finance solutions. These disruptions provide faster, more efficient, cost-effective financial services, challenging traditional models for investors and businesses.

Automation and Artificial Intelligence (AI) in Operations

Automation and AI technologies have brought remarkable improvements to investment banking operations. Tasks like data entry, trade settlements, and reconciliation have been streamlined with Robotic Process Automation (RPA), leading to faster processing and reduced errors.

AI-powered algorithms assist in trading, portfolio management, and risk assessment, empowering data-driven decision-making.

Blockchain and Distributed Ledger Technology in Investment Banking

The transformative potential of blockchain technology has been recognised in investment banking, particularly in transaction settlement and post-trade operations.

By offering secure and transparent record-keeping through decentralised and immutable ledgers, blockchain minimises the need for intermediaries and enhances trust between parties. It enables faster and more efficient securities settlement while lowering the risk of fraud.

Data Analytics and Machine Learning Applications

Investment banks have embraced data analytics and machine learning to gain deeper insights into market trends, customer behaviour, and risk management. The analysis of big data aids in informed investment decisions, optimising trading strategies, and offering personalised services to clients.

Among other critical applications, machine learning algorithms are instrumental in credit risk assessment, fraud detection, and portfolio optimisation.

Investment Banking Career Paths and Skills

Roles in Investment Banking (Analyst, Associate, VP, Managing Director)

Investment Banking Analyst

Analysts in investment banking are entry-level professionals who conduct financial analysis, build models, prepare pitch materials, and assist with due diligence for transactions. They usually hold bachelor’s degrees in finance, accounting, economics, or related fields.

Investment Banking Associate

Associates are more experienced than analysts and take on additional responsibilities in deal execution and client management. They work closely with senior bankers and often supervise analysts. Associates usually have an MBA or relevant master’s degree and prior experience in finance or investment banking.

Investment Banking Vice President (VP)

Vice Presidents are senior members of the investment banking team who lead deal teams, oversee transaction execution, and play a key role in business development. They are responsible for managing client relationships and providing strategic advice. VPs have significant experience in investment banking or related fields.

Investment Banking Managing Director (MD)

Managing Directors are top-level executives in investment banking responsible for leading and managing the entire division. They focus on business strategy, relationship management with significant clients, and setting overall goals for the division. MDs have extensive experience in investment banking and a successful track record.

Skills and Qualifications for Investment Banking Professionals

Financial acumen: Investment bankers must possess a deep understanding of financial concepts, including financial statement analysis, valuation techniques, and capital markets. They must interpret complex financial data and trends to provide sound financial advice to clients.

Problem-solving: Investment bankers face intricate deals with potential unexpected challenges. Problem-solving skills are essential to navigate complexities, find innovative solutions, and ensure successful deal execution.

Bachelor’s degree in finance or related field: Most investment banking roles require a bachelor’s degree in finance, economics, business, or a related discipline. A solid educational foundation equips professionals with fundamental knowledge in finance and accounting.

Relevant work experience: Many investment banking positions seek candidates with prior experience in finance, investment analysis, or related roles. Internships, finance-related projects, or work in financial institutions can provide valuable exposure and enhance the candidate’s profile.

Licensing or certifications: Certain roles in investment banking may require a licence or certifications. The Chartered Financial Analyst (CFA) certification is also highly regarded in the industry.

Career Development and Advancement

The career progression in investment banking typically follows a well-defined trajectory, starting as an analyst and ascending to higher roles like associate, VP, and ultimately, managing director or senior leadership positions.

This advancement is contingent on exceptional performance, deal execution expertise, successful business development, and strong leadership abilities.

Specialisation opportunities:

Investment banking professionals can specialise in specific sectors like technology, healthcare, or real estate, opening up more prospects within those industries. Becoming a subject matter expert enhances career growth and widens potential opportunities.

What is Investment Banking Trends and Challenges

Emerging Trends in Investment Banking

Digital transformation: Investment banks increasingly embrace digital technologies and automation to streamline operations, enhance client experiences, and improve efficiency. Fintech innovations, artificial intelligence, and blockchain are reshaping various aspects of investment banking processes.

ESG investing: Environmental, Social, and Governance (ESG) considerations have gained prominence in investment decisions. Investors increasingly focus on companies’ sustainability practices, ethical standards, and social impact. Investment banks incorporate ESG factors into their research, valuation models, and client advisory services.

Private capital markets: There is a growing interest in private capital markets, with investors seeking opportunities in venture capital, private equity, and direct investments in private companies. Investment banks are increasingly involved in fundraising and advising in these private markets.

Cross-Border deals: Globalisation has increased cross-border mergers and acquisitions, requiring investment banks to navigate complex regulatory environments and cultural differences to facilitate international transactions.

Challenges and Opportunities in Investment Banking

Adhering to complex regulations: Investment banks grapple with the intricacies of financial regulations, striving to ensure compliance with AML and KYC requirements while upholding ethical practices.

Managing market volatility: The investment banking industry is susceptible to market fluctuations, necessitating effective risk management strategies to safeguard banks and clients from volatility.

Coping with intense competition: Fierce market competition creates fee pressure and narrow profit margins. Banks must distinguish themselves through specialised services, top-tier advisory, and innovative technology.

Impact of Global Economic and Market Conditions

Global economic and market conditions significantly influence investment banking activities. Economic downturns can reduce deal activity, affect capital raising, and increase credit risks. 

Conversely, periods of economic growth can drive M&A transactions and investment opportunities.

Environmental, Social, and Governance (ESG) Considerations

ESG considerations have a profound impact on investment banking. Investors increasingly prioritise sustainable and responsible investments, influencing deal-making and capital allocation decisions. Investment banks incorporate ESG factors into their research, risk assessments, and client recommendations.

Case Studies and Real-World Examples

Successful Investment Banking Transactions

Amazon acquiring Whole Food

In a groundbreaking move, Amazon executed a momentous acquisition of a widespread network of Whole Foods supermarkets, valued at an astounding $13.7 billion. Though the inception of this collaboration encountered certain obstacles, the outcome served as a transformative catalyst for Amazon’s trajectory.

By joining Whole Foods, Amazon significantly expanded its online shopping operations and gained a formidable offline presence. The acquisition opened the doors for Amazon to venture into the fiercely competitive grocery and food industry, giving them a substantial advantage.

Disney and Marvel/Pixar

Disney has showcased its prowess in acquiring other successful companies, cementing its status as an entertainment powerhouse. In a significant deal in 2006, Disney acquired Pixar for an impressive $7.4 billion. This collaboration led to the release of blockbuster hits such as WALL-E and Toy Story 3, generating astounding revenues in the billions.

Building on the success of the Pixar acquisition, Disney repeated the feat by acquiring Marvel Entertainment three years later. The subsequent Marvel films broke records at the box office and brought in billions in revenue.

These acquisitions have proven to be a strategic masterstroke for Disney, solidifying its position as a dominant force in the entertainment industry, with each successful blockbuster further affirming its triumphant approach to growth.

Notable M&A Deals and Capital Market Offerings

Notable M&A Deals

Vodafone and Mannesmann (1999) – $202.8B

In 2000, Vodafone acquired Mannesmann for approximately $203 billion, making it the largest acquisition ever. This deal positioned Vodafone as the world’s largest mobile operator and influenced numerous mega deals in the mobile telecommunications industry.

AT&T and Time Warner (2018) – $108B

In 2018, AT&T’s merger with Time Warner for $108 billion faced antitrust scrutiny, unlike Time Warner’s previous controversial merger with AOL. The AT & T-Time Warner deal was more carefully considered, with AT & T’s more robust financial position.

Notable Capital Market Offerings

Saudi Aramco IPO (December 5th, 2019)

  • Raised $25.6 billion in capital.
  • Current valuation in 2023: $1.93 trillion.
  • Largest IPO of all time.
  • The stock performed well, with close to 10% annual growth.

Alibaba Group IPO (September 19th, 2014)

  • Raised $21.7 billion in capital, with a $167.6 billion valuation.
  • Highly hyped IPO, finishing 38% above initial listing price on the first day.
  • Current valuation in 2023: $272.9 billion.
  • Faced challenges due to political turbulence in China.

What is Investment Banking Best Practices and Lessons Learned

Best Practices

Due diligence: Conducting comprehensive due diligence is crucial before engaging in any transaction. Understanding what is investment banking deal’s financial, legal, and operational aspects helps mitigate risks and uncover potential issues.

Ethical conduct: Upholding high ethical standards is fundamental in investment banking. Transparency, honesty, and fair dealing build trust with clients and foster a positive reputation in the industry.

Market intelligence: Staying informed about what is investment banking market trends, regulatory changes, and economic conditions is vital for offering valuable insights to clients and making informed investment decisions.

Lessons Learned

Timing matters: The timing of a deal can significantly impact its success. Market conditions, economic fluctuations, and geopolitical events can influence the outcome, emphasising the importance of strategic timing.

Client education: Ensuring clients fully understand what is investment banking complexities and risks of investment opportunities, helping them make more informed decisions and reduce misunderstandings later.

Communication is key: Effective communication with clients and internal teams is crucial for managing expectations, aligning strategies, and resolving potential conflicts.

Conclusion

The world of investment banking offers a plethora of opportunities for aspiring professionals. However, excelling in this dynamic field requires a strong foundation of skills and knowledge of what is investment banking. That’s where Imarticus Learning’s Certified Investment Banking Operations Professional course comes into play.

With Imarticus Learning’s comprehensive investment banking certification, aspiring professionals can gain a competitive edge in the industry.

Moreover, the added advantage of Investment banking internships ensures graduates are well-positioned for exciting career opportunities in investment banking.

Whether you are just starting your career or seeking to advance in the field, Imarticus Learning’s investment banking course can be your pathway to success in the fast-paced world of investment banking.

Visit Imarticus Learning today to learn more about certification in investment banking.

Learning investment banking has never been this easy

Posted on by Imarticus Learning

Dreaming about securing a permanent position in the investment banking industry and achieving that goal can be pretty tricky. Since investment banking is a growing sector in finance and business, it is one of the most demanded career paths among students. The promising expansion in investing, selling and trading play a major role in the growth of investment banking. The year 2021 saw a massive upheaval in the Indian investment banking sector and deal-making businesses as there was unexpected flooding of IPOs and stock share sales.

The overall hike was more than three times that of 2020 when investment bankers made only 776.7 crores whereas they scored a whopping 2.000 crores in 2021. It is statistically possible that investment banking in India will grow by 8.5% in 2022. So learn investment banking in the easiest way ever to celebrate your dream and become more aware and skilled in finance.

Technical Skills Required to Become an Investment Banker

There are certain hard skills that an investment banker needs to hone before joining the industry. It is unavoidable to squeeze in the little space left for new bankers without highlighting essential skills on your resume. Investment banking courses that groom students to acquire these skills are the best. Here is a list of some technical skills that will make your investment banking career easier: 

Basic Excel

Learning a few basics of Excel like Pivot Table, Data Validation, Look-Up functions, and Macros proves handy when you are aspiring to become a banker. Skills like analyzing clients’ financial data, creating monetary models for them, and forecasting are must-haves in this field.

Python

One of the most suitable programming languages for banking is Python. Learning how to use this simple programming language might come in handy when you are planning to go ahead with investment banking. Python is used to handle tasks like security analysis, risk and trade management, asset management, automated trading, etc. 

JAVA

One of the core skills that an investment banking candidate must possess is knowledge and control of Java. Java is the most used programming language for banking tasks as this helps build software programmes that contain humongous volumes of data. Also, this programming language comes with a tight and powerful security management feature that aids in investment banking tasks. Credit, fundamental, or macro funds typically need Java to operate.

C++

C and C++ are two of the most pivotal skills one can acquire to step further above on the ladder of success in the investment banking sector. C++ is mostly used to handle low-latency applications related to automated trading or market making. Bankers deal with C++ when they have to process quantitative-driven funds, quantitative finance and analytics. C and C++ are popular because of their reusability and speed.

C#

C# is essential in building GUI (Graphical User Interface) for the client company. It also plays a major role in creating mobile apps and websites. For investment bankers, C-Sharp is thus a useful language to enhance their skills for brilliant job opportunities.

Ruby

An efficient candidate for an investment banking position would be expected to have a firm knowledge of Ruby. Ruby is a high-level programming language that is mostly used in financial sectors for making payment systems like e-wallets and payment gateways, and monetary dashboards. Also, it covers significant tasks like asset management and Big Data. 

Power BI

An important data analysis tool is Power BI by Microsoft. Any type of banking, including investment banking, would require this tool for creating data visualisation. So thorough control over this tool would be an effective skill to have as an investment banker. 

Soft Skills Required to Become an Investment Banker

It gets easier if a candidate works on gaining personal skills related to this field while also pursuing related technical skills. Below are the few soft skills that help an investment banker stay rooted in the industry in the long run:

Analytical and Problem-Solving Skills

Analytical and problem-solving skills can save a candidate from getting rejected in mass competition. Data analysis, data visualisation, research, and critical thinking are all part of analytical and problem-solving skills. These soft skills distinguish an amateur from a professional.

Project and Time Management

As an investment banker, one needs to work with investors and client companies to manage the projects given to them. It is crucial to have a balanced perception of how to settle the project within a limited time.

Mathematical Skills

Finance is zero without numbers. So it is compulsory to own a strong calculative mind when dealing with investments.

Conclusion

There are multiple online and offline investment banking courses with placement assistance. But choosing the right can be difficult. Have a firm grasp of the technical and personal skills to become a successful investment banker with the Certified Investment Banking Operations Professional programme.

This course will enlighten you with in-depth knowledge of various product lines, and a better understanding of trade life cycles. Land a precious job at the leading banks with this programme’s efficient placement services and prepare yourself better through mock interviews and resume enhancement.

Want to Become an Anti-Money Laundering Specialist? Learn More About Job Roles

Posted on by Imarticus Learning

Financial institutions have to pay special attention to each customer and transaction to identify any fraudulent activity. A bank that has strong anti-money laundering policies will prevent people from depositing illicit money into any bank account.

Security policies are the main concern of financial institutions if they want to stop losses. Not only the financial institutions, but the government is also strict when it comes to money laundering.

Young enthusiasts that are looking to build a career in banking/finance should learn anti-money laundering skills to earn a better job offer. Read on to know more about anti-money laundering and different job roles in the industry.

Understanding money laundering via financial systems

In the money market, many criminals try to coat the source of their incomes. You cannot deposit money obtained from any illegal activity in banks. Money laundering hides the source of the black money and makes it white. The dirty money is moved around in a financial system and, multiple transactions are made to confuse the bank officials. It also includes depositing black money in small amounts or transferring black money to a foreign country.

best investment banking courses with placement in IndiaOnce the dirty money is cleaned via money laundering, criminals can use it to finance criminal activities.

It will not only affect the financial institutions but also affects the country and the citizens.

Financial institutions have strong AML (Anti-money Laundering) policies in place that stop criminals from depositing money.

Performance areas of anti-money laundering jobs

The day-to-day job responsibilities of anti-money laundering professionals in banks are as follows:

  • Anti-money laundering experts have to analyze the money market and uncover the pertaining risks within the financial institution. They are also involved in identifying and monitoring suspicious bank accounts or transactions.
  • Anti-money laundering experts are aware of the current alerts generated by the law enforcement authorities. Many times, they help law enforcement to catch a money launderer.
  • Procedural vulnerabilities and loopholes in the financial system are identified by anti-money laundering experts. All those areas that can be exploited by money launderers are identified by anti-money laundering professionals.
  • Anti-money laundering professionals also offer expert advice to financial executives for maintaining high-risk accounts.

What are the job roles in Anti-money laundering?

The financial market is complex and, criminals are also using advanced money laundering techniques. There are different types of anti-money laundering jobs that work together to stop the movement of black money. The top types of anti-money laundering jobs are listed below:

  • Junior Compliance Administrator: People who join the AML industry become junior compliance administrators. They have to carry out routine AML checking and administration of compliance processes in the bank.
  • Risk & Compliance Officer: A risk & compliance officer will be involved in KYC (Know Your Customer) activities. The risk officer is also concerned with CDD (Customer Due Diligence).
  • Fraud Investigator: Fraud investigators uncover the source of fraud in any financial institution.
  • Chief Compliance Officer: It is responsible for forming better AML policies for the financial institution.

How to learn more about AML?

Many young bankers are choosing online risk management courses to know more about AML. The Certified Investment Banking Operations Professional course offered by Imarticus can be the right choice. This course will teach you about financial markets and risk management. You will also go through case studies to know more about real-world AML processes.

Conclusion

In this digital era, criminals are conducting complex money laundering attempts. To stop those attempts, banks need expert AML professionals in the coming years. With an online course in risk management, you can learn the required AML skills. Start your risk management course now!  

Top 5 Regulatory Changes in the Investment Banking Operations Industry

Posted on by Imarticus Learning

The investment banking industry is responsible for raising capital for businesses. In 2021, investment banks will help their clients in identifying revenue-generating opportunities. The investment banking operations industry must perform per some of the regulatory norms. Regulations for the investment banking operations industry are decided by the central/state government. If an investment bank fails to comply with the regulations, it may go through legal hassles. Besides finance professionals, investment banks also need expert compliance officers for following the regulations. There are investment banking courses online that can help you in learning regulatory compliance. Before you search investment banking courses online, you should know about these five regulatory changes.

 

  • Lending limits

 

The exposure limit for investment banks is decided by the central government. The exposure limit defines the amount of loans banks can give to borrowers based on their total funds. The exposure limit is often revised by the central government and investment banks must follow it. The current exposure limit for banks in India is 15% for a single borrower. For a group of borrowers, the exposure limit for banks in India goes up to 25%. The exposure limit can be increased by 5% for financing infrastructure projects. Investment banks often identify capital ventures and invest themselves. While doing so, they should not lend more than the exposure limit to avoid legal hassles.

 

  • Cash Reserve Ratio (CRR)

 

Financial institutions in India must keep a certain amount of cash with RBI (Reserve Bank of India) to meet payment obligations. The CRR is decided by the RBI and changes all the time. Investment banks must keep an eye on the current CRR to avoid any legal hassles with RBI. The current CRR for financial institutions in India is 3%. It means that if the deposit of a financial institution increases by INR 100, then INR 3 will have to be deposited to the RBI.

 

  • Operation norms

 

Once an investment bank has been incorporated, it must conduct operations according to the regulatory norms. According to the norms, an investment bank must list its shares within three years of its incorporation. The regulatory structure also defines the percentage of foreign shareholding. As for now, the foreign shareholding is restricted to 49% in India (maximum). Investment banks can increase foreign shareholding further but only after contacting RBI. The latest regulations also state that financial institutions must open 25% of their branches in rural areas where banking facilities are limited.

 

  • RBI

 

RBI will only set the banking regulations in India for all investment banks. The RBI Act launched in 1934 has given this power to the RBI for deciding the banking regulations. All investment banks that are incorporated under the ‘Companies Act’ will have to follow the RBI regulations. Often, RBI reviews the regulatory structure and makes changes. Compliance officers must keep an eye on the latest announcements from RBI.

 

  • Investment Advisors Act

 

The Investment Advisors Act brought a paradigm shift in the investment banking sector. Before this act, investment banks misinformed investors to curb the competition. In 1940, the Investment Advisors Act was created in which all investment banks had to register themselves. The fees collected by investment advisors are also regulated by this act. An investment banking certification can help learn more about the regulatory structure.

Which is the best investment banking course in 2021?

Imarticus Learning provides an investment banking certification in partnership with London Stock Exchange. The Certified Investment Banking Operations Professional course will help you in launching your investment banking career. With an industry-endorsed curriculum and career guidance, you can build your investment banking career. Start your CIBOP course with Imarticus now! 

Steps Investment Banks are Taking to Cope with the Covid-19 Crisis

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The world never saw what was coming. The Covid-19 pandemic has impacted the global economy and the Indian economy. The downsizing and disruption of small and medium-sized enterprises, establishment of new business model and the business continuity plan, excessive demand and adoption of digitalisation and introducing a high standard of digital transformation like AI, Cloud computing, SaS and many more such trends were visible for quite some time in 2020 and also extended to 2021. The services like loan advancements, remittance, credit and debit cards, payments, investment management, risk management, raising capital and others were massively affected which resulted in crises of banks. This forced the possibility of revolution. The banks had to come up with alternative actions to regain the profitability margin.

Several operating divisions like commercial banking, retail banking, investment banking transformed to cope up with the Covid-19 crisis. Multiple challenges have affected revenue generations because of interruption in services, social distancing and digital mode of service offering. The investment banks specifically needed to take immediate actions as specified below.

  1. The services and offerings have to be digital, also known as touchless mode of operations
  2. Introduction of Artificial Intelligence and software that offers quality data and insights to drive company growth
  3. Offering self-service and smooth interface to enhance the experience of online platforms making it easier for customers to access
  4. Strong Infrastructure that can withstand or foresee risk also known as resilience

Based on the mixed impact on the Investment banking platform and how different firms responded or continue to respond to the Covid-19 crisis, it is expected that this division will undergo some permanent changes like the adoption of Cloud Technology and mutualisation of services through partnering with fintech companies; risk management which is majorly taken care of by the digital technologies; adaptation of new client engagement models because of a hybrid working ecosystem- virtual collaboration is trending.

To keep up with these permanent changes in the business model and succeed in the post-covid era, investment banks need to accept and adopt digital transformation and build resilience to avoid such global attacks in the future.

Just to have an idea of how investment banking works, we will highlight the top two ways to give an overview of their functionality.

  1. Mergers and Acquisitions: An investment bank will evaluate the companies and identify the strengths of each division which allows the M&As to happen at a fair price and in return the bank gets a certain percentage of the deal as their fees.
  2. Initial Public Offering (IPO deals): An investment bank helps set the price of the offerings going public for the first time and get enlisted on the stock market. They market it proactively to their clients and earn a commission on the raising capital.

There are other ways of how investment banking works such as Private Wealth Management, Prime Brokerage and Proprietary trading and these are as popular and revenue generation oriented as the other ones. 

Investment banking is one of the highest paying jobs in the world of finance. Investment bankers usually make 30-40% higher salaries because such banks are more profitable compared to other management firms.  Investment banks deal at an institutional level with big tech firms, global or national banks. Having a curiosity to know about this industry is good but also is important to know what do you learn in investment banking. You do not require any specific degree to learn investment banking but having said that, some skills in economics, mathematics, business and finance will add to your benefit when you are in an interview. An investment banking certification course will introduce you to several subjects like financial modelling and accounting, risk management and market analysis.

You may enrol yourself for a program like Certified Investment Banking Operations Professional that offers you investment banking certification which will help seek clarity on what you learn in investment banking. Once you have an entry into the industry, you can only see yourself flourish and achieve a future that you dreamt of.