What is the Role of Investment Bankers?

24-Nov-2022

Investment Banking has emerged as one of the top coveted jobs across the globe and especially on Wall street. It is one of the most demanding and arduous career choices, known for being characterized by long working hours and high levels of stress, yet offering some of the most wanted and financially rewarding positions in the banking business.

Role of investment banking

It's critical to consider the qualifications needed for the position when attempting to have a grasp of the roles of Investment bankers. An investment banker is responsible for a wide range of tasks, such as performing market research, monitoring financial trends, and handling a mountain of administrative work. The organization, division, and industry classification all affect the specific duties. Let us delve into what tasks should be anticipated for Investment bankers by any aspiring candidate.

Overview of the Roles of Investment Bankers

Research and Analysis

Investment bankers spend countless hours examining databases and market reports to gather pertinent data for use in decision-making. The research could involve creating company profiles for reports or discovering and analyzing stock performances for various companies.

Financial Modeling and Valuation

One of the jobs that investment bankers should anticipate carrying out on a regular basis is doing company valuations, executing financial modeling, and calculating financial metrics. To forecast corporate success, an investment banker requires to be an expert user of Excel and familiar with valuation multiples.

Presentations for Investments

Pitchbook presentations outlining plans, benefits, risks, and timetables are expected of new investment bankers. They are expected to complete the majority of the work, including creating presentations and creating slides after taking into account the seniors' comments and markups. For the pitches and presentation materials, investment analysts should be ready for unforeseen and unreasonable deadlines.

Administrative Tasks

Investment bankers may also be expected to plan meetings, arrange travel, write notes, print documents, revise reports, and provide updates to team members in addition to their regular duties. They may frequently be assigned tasks like making coffee, making reservations for a group supper, mending printers, and performing other little errands.

We may summarize the roles of Investment bankers in financial services in the following points

Capital Raising: Tasks include Book building, Issuing and Selling securities, drafting the prospectus, Investment meetings (Roadshows), Initial Public Offerings (IPOs), etc.
Private Placement of Capital
Mergers, Acquisitions & Divestitures
Corporate Restructuring
Advisory Services for Debt and Equity
Issue of Bonds and Bond pricing in the market
Advisory services for Mutual, Hedge, and Pension funds

Understanding the Job of an Investment Banking Analyst

An Investment Banking Analyst performs the job of helping customers find capital from investors. Additionally, they could support customers with information analysis, financial forecasts, and merger or acquisition negotiations so that clients can make well-informed choices. In order to create financial valuation models based on trends, they examine and evaluate data.

The typical job of an Investment Banking Analyst can be categorized in the following discussion.

Financial Modeling:

A financial model is created from scratch with assistance from an investment banking analyst. Before beginning to create any Excel formulae or create hypotheses, one should keep in mind the three general goals of the economic model. These include:

Generating an anticipated value
Evaluating the investment's risk
Constructing a financial structure

Project Financing

This job entails financing a project. Lenders fund the development of a project by considering the risks and potential cash flows of the particular project. The process of raising money on a limited-resource or non-resource basis to finance economically detachable capital investment projects, in which the loan providers primarily rely on the project's cash flow to pay back their debts.

Merger and Acquisition

An investment banking analyst would assist the business in making decisions during the merger and acquisition process by reviewing the following information: -

Know what you are purchasing; this frequently occurs in markets or with a target that can benefit from an established company.
Purchases are made by the buyer from a position of strength rather than vulnerability. Performance, management know-how, systems, culture, market leadership, etc. are all examples of strengths.
The worst transactions take place in competitive bid conditions or "hot" M&A markets (overpayment).
Stock versus cash discipline.

Leveraged BuyOut (LBO)

the job of an Investment banking analyst also includes being competent at LBO modeling. Building an LBO model consist of the following steps:

Analyze a company's market worth.
Utilize the IRR computation to limit the equity return.
Find out the company's cash flow.
Determine a company's maximum capacity for debt repayment.
Analyze the buyer's financial risk.

Financial Statement Analysis

The job of a banking analyst also includes financial statements which demand the technical expertise to examine the financial statement to work as an investment banking analyst. The Financial statements analysis includes:

Cash flow from operations
Financing an expense
Discretionary purchase
Outside funding
Net changes in currency
Debt
Dividend Payable
Bank debt after taxes
Equity arrangement
Depreciation
Interest rate

We have discussed in detail the role of investment banking and the requisite skills that one should have to perform the role.