INVESTMENT BANKING EDUCATION
WHAT INVESTMENT BANKERS MUST KNOW
Investment banking requires, first and foremost, knowledge of how to conduct financial analyses to assess the value of businesses, both under actual conditions, as well as hypothetical conditions, such as after a potential merger or in the event of a sudden future increase in working capital. To this end, the investment banker’s job entails undertaking both qualitative and quantitative analyses of businesses under scrutiny.
Prior to embarking on the elaborate procedure of quantitative valuation, the investment banker must make a rough determination of whether a given company is worthy of a potential transaction, whether it be a hostile takeover for the purpose of liquidation or a merger and acquisition transaction with an eye to combining two companies to create a significant product synergy. This first pass at determining the investment potential of an investment banking transaction demands considerable knowledge of general business practice and an understanding of the particular industry in which the business(es) under consideration operate, along, possibly, with the economic environment of the region(s) in which the target business(es) operate.
Valuation is a complex procedure, which the financial analyst, under the supervision of senior investment bankers, begins by conducting a financial statement analysis. In a financial statement analysis the statement of cash flows, income statement and balance sheet are scoured for relevant information, which is recorded and subjected to calculations to determine several fundamental features of a business’s financial health and potential, including its current value. However, Investment banking requires a much more involved financial model of businesses being considered for a transaction. The investment banking model is embellished with detailed information, e.g., about possible future scenarios and comparable companies. A complete financial model, such as a leveraged buyout model (LBO model) or a merger and acquisition model (M&A model) will likely involve a comparable company analysis and most certainly will take into account the particular sensitivities, or hypothetical scenarios, that the investment bankers believe are pertinent to evaluating the profitability of the transaction being considered.
When assessing the knowledge required for success in an investment banking career, it is crucial to note that the skills enumerated here—in quantitative and qualitative financial analysis—must be practiced on companies that are both publicly and privately held. This means that investment bankers must be able to find or derive information that, while readily available for public corporations because of SEC filing rules, haven no standardized source and may not be publicly available in the case of private companies. In sum, the process of financial model building is involved and demands tremendous skill of the investment banker.
WHERE INVESTMENT BANKING EDUCATION CAN BE OBTAINED
The traditional education for investment bankers comes in two stages. First, a prospective investment banker completes a relevant undergraduate degree. A Bachelor’s in Business or Finance are the most common undergraduate options, but any degree in a standard academic field from a reputable institution can serve to launch a career in investment banking, so long as it demonstrates significant knowledge of mathematics and, preferably, business finance. The next step in the traditional investment banking career is to become a financial analyst, or, simply, an analyst. Junior analysts, as they are also called, typically follow a two year program at an investment bank or comparable Wall Street firm, such as a private equity fund or hedge fund. During this two year stint, budding investment bankers begin by taking on the many rudimentary tasks involved in building financial models for investment banking, such as entry of financial data and coding spreadsheets. The junior analyst’s job becomes more complex as he or she acquires experience. At the end of the two years, analysts following the traditional track go back to the university to obtain the Master’s in Buisness Administration (MBA) before returning to work as an investment banker. Upon returning, the investment banker takes a position as a senior analyst, or possibly a junior partner in the investment banking firm, depending on the firms titling preferences, structure and size.
In reality, much of the relevant education used by the investment banking professional is acquired through experience working as an investment banker, rather than through formal education. This is the result, in good part, of the fact that there is so much complexity in construction of financial models for investment banking. Indeed, non-traditional investment banking career paths are not uncommon because general aptitude rather than formal education is a better predictor of success for the new investment banker embarking on a Wall Street career.
The Investment Banking Institute’s training course provides a unique opportunity to gain knowledge of investment banking methods that are otherwise difficult to master without significant time in investment banking or a related Wall Street profession. Not only are investment banking financial modeling methods taught during the Investment Banking Bootcamp, students of the Investment Banking course spend much time actually building and using these models. The result is that students of the Investment Banking Bootcamp acquire an education in investment banking that would otherwise have taken a much longer combination of formal university education and employment lower in the ranks of an investment bank. Additionally, the Investment Banking Bootcamp provides the prospective investment banking analyst from a non-traditional background with fundamental skills and a qualification that will serve well both in landing an investment banking job and then succeeding in it.
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