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STRICTLY CONFIDENTIAL. Investment Banking 101. University of Chicago. November 8, 2006. Table of Contents. SECTION 1 Overview of Investment Banking 2 SECTION 2 Role of Analyst and How to Get the Job 9 SECTION 3 Career Opportunities at UBS Investment Bank 18

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investment banking 101


Investment Banking 101

University of Chicago

November 8, 2006

table of contents
Table of Contents
  • SECTION 1 Overview of Investment Banking2
  • SECTION 2 Role of Analyst and How to Get the Job9
  • SECTION 3 Career Opportunities at UBS Investment Bank18
  • SECTION 4 UBS Investment Bank: A Global Leader21
  • APPENDIX A Understanding the Financial Statements27
  • APPENDIX B Understanding Debt and Equity38
  • APPENDIX C Valuing a Company43
  • APPENDIX D Terms to Know49
section 1


Overview of Investment Banking

ubs investment bank
UBS Investment Bank

The Investment Bank is comprised of...

Revenue Generators

  • Investment Banking
  • Sales & Trading
  • Asset Management
  • Private Equity


Support Services

  • Research Analysts
  • Information Technology/Operations
  • General Corporate Services
what is investment banking
What Is Investment Banking?

Investment Banking is primarily about two tasks:

Giving Advice

Raising Capital

giving advice
Giving Advice

Investment Bankers act as advisors to industry leaders and key investors

Investment Bankers Advise…

…on Various Types of Transactions

  • Management
  • Equity holders
  • Debt holders
  • Prospective buyers
  • Mergers
  • Acquisitions
  • Divestures
  • Equity offerings
    • IPOs
    • follow-on offerings
  • Debt offerings

Additionally, much advisory work is done away from transactions

raising money
Raising Money

Investment Banks act as an intermediary between entities that require capital and investors

Provide Capital

Require Capital

  • Banks
  • Mutual Funds
  • Hedge Funds
  • Private Equity
  • Pension Funds
  • Insurance Funds
  • Individuals
  • Corporations
  • Governments

Money exchanged for Stocks, Sr Debt, Bonds, Mezzanine

Simply put, Investment Bankers get money for people who need it—from people who have it

where do you fit in
Where Do You Fit In?

At UBS, you will work in either an Industry Group or a Product Group

Industry Groups

Product Groups

Consumer Products & Retail

Energy and Power

Financial Institutions


Global Industrial Group

Real Estate


Transportation & Services

Debt Capital Markets Group

Equity Capital Markets Group

Equity Corporate Finance Team

Financial Sponsors

Leveraged Finance

Global Syndicated Finance

Mergers & Acquisitions

Private Equity Placement Group

where do you want to be
Where Do You Want to Be?

Industry Group

Product Group

Desire for a particular skill-set(i.e. M&A, Restructuring)

Passion for a particular industry (i.e. Technology, Media)

Motivated to create a toolbox ofskills (i.e. M&A, Equity, LBOs)

Would like to be a specialist

Focus on building relationships with clients

Focus on executing transactions

Interact with all product groups

Advise all industry groups

“Think macrolook at the BIGGER picture!”

“Hone in on a particular skill-set!”

section 2


Role of Analyst and How to Get the Job

hierarchy in investment banks welcome to the bottom
Hierarchy in Investment Banks: Welcome to the Bottom

Managing Director

Executive Director


Associate Director/Associate



Team sizes can range from 3 to 5 people and consist of at least an Analyst, mid-level banker (AD or D) and a senior level banker (ED or MD)

what would you do
What Would You Do?

Role of an analyst at an investment bank

  • Valuation work
    • Comps
    • Precedents
    • DCF analysis
  • Summarize research analyst views
  • Earnings impact (Accretion/Dilution) of potential (or actual) M&A situations
  • Company profiles
  • Track news and key events
  • Analyze industry trends
  • Attend diligence sessions and management presentations
  • General support for Associate and rest of team
  • General administrative work like setting up meetings or conference calls
  • Employ learned “academic” skills in real world business situation
what makes the analyst job great besides the hours
What Makes the Analyst Job Great (Besides the Hours)?

As an Analyst, you will have the opportunity to…

  • Work with talented and reputable senior bankers
  • Gain insight into finance, business and a career in Investment Banking
  • Work at a top firm with a strong global platform
  • Be a part of an international team, i.e. cross-border deals
  • Work on deals that change the face of an industry
  • Learn the fundamentals that will make you a good banker
  • Be challenged by a steep learning curve
  • Meet and interact with clients at various levels from junior executives through CFOs and CEOs
there are many routes to wall street
There are Many Routes to Wall Street

There is no “right” formula, but there are ways to maximize your chances of getting a job

  • Talk to as many people as you can
    • find out about their experiences and their views
    • seek out classmates who have interned in Investment Banking
    • focus on how the various banks differentiate themselves in terms of culture, prospects and responsibility given to Analysts

Positioning yourself…

  • It is important to present yourself as having a portfolio of skills and qualities
  • There are several skills and qualities that banks look for
    • technical ability and a strong interest in finance
    • familiarity with Excel
    • strong interpersonal skills
    • ability to work within teams
    • relevant work experience
    • a record of success/achievement
qualities that investment banks look for in candidates
Qualities that Investment Banks Look for in Candidates

A Strong Interest in Finance

  • Take courses that demonstrate your interest in finance
  • Convey to an interviewer/contact person that you understand:
    • what investment banking is
    • what an analyst does
    • why you would be a strong candidate for that particular bank

Coursework or Work Experience

  • Where you used Excel, and if possible, built models
  • Where you have learned to read financial statements
  • That demonstrates that you are comfortable with numbers
  • That shows you are comfortable in front of people (e.g., sales position, leading a seminar, student government)
  • Any work experience during the summer or while attending school that demonstrates your strong work ethic

A Team Player

  • Team-driven job accomplishments on resume
  • Other obvious team experiences and team successes
  • The objective is to demonstrate that you work well with others

A Record of Success and/or Achievement

  • Academic GPA, scholarships/honors, test scores
  • Leadership of student organizations or teams
  • A high level of athletic accomplishment
  • Community service with a record of achievement
what can you do to develop some of these qualities
What Can You do to Develop Some of these Qualities?

Do Your Homework

  • Understand what Investment Banking is and what an Analyst does so you can decide if it really is for you
    • talk to individuals who work or have worked within the industry
    • read industry guides such as Vault and Wet Feet
  • Understand the different firms so that you can choose well
    • each Investment Bank has its own unique culture
    • focus on the places where you fit best and go after those firms

Enroll in Applicable Courses

  • Take as many finance and accounting courses as possible so that you:
    • become familiar with financial terminology
    • progress further along the learning curve
    • increase the likelihood of securing a full-time offer
  • Enrolling in these courses further demonstrates your interest and commitment to the industry

Read the Financial Press

  • Pick an industry or industries that are of interest to you
    • familiarize yourself with that industry and a few companies within that sector
  • Understand an industry and be able to talk about it intelligently
  • Suggested readings: Wall Street Journal, Financial Times, The Economist, Fortune, Business Week, Forbes, etc.

Develop Your Story

  • You are marketing yourself, and you need to explain clearly why you want to be a banker
  • Point to examples that show you will be successful once you become an Analyst
  • A large extent of an investment banking interview is about testing judgment
    • what is the reasoning behind the decisions you have made and what have you learned from those experiences
    • investment banks are looking for individuals who can demonstrate that they possess good judgment
helpful references
Helpful References

Books About Investment Banking

  • Auletta, Greed & Glory on Wall Street
  • Bhatawedekhar, Vault Guide to Finance Interviews
  • Brealey & Myers, Principles of Corporate Finance
  • Burroughs, Barbarians at the Gate
  • Greenberg, Memos from the Chairman
  • Knee, The Accidental Investment Banker: Inside the Decade that Transformed Wall Street
  • Lott & Prior, Career Guide to Investment Banking
  • Naficy, The Fast Track
  • Pratt, Valuing a Business
  • Reed, The Art of Mergers and Acquisitions
  • Rolfe & Troob, Monkey Business: Swinging Through the Wall Street Jungle
  • Smith, Comeback
  • Stewart, Den of Thieves
  • Wall Street Journal Editors, Who's Who and What's What on Wall Street
  • Wasserstein, The Big Deal

Industry Related Websites

section 3


Career Opportunities at UBS Investment Bank

ubs recruiting at the university of chicago
UBS Recruiting at the University of Chicago

UBS recruits at University of Chicago for both our New York and our Chicago offices


  • IBD summer intern
    • New York office
    • Chicago office

Key Dates:

  • Internship Career Fair: Thursday, January 11, 2006
  • Resume Drop: TBD
  • Interviews: Monday, January 29, 2006

We offer separate resume drops and interview schedules for each office

appendix a


Understanding the Financial Statements

the three financial statements
The Three Financial Statements

There are three key financial statements

Balance Sheet

Income Statement

Statement of Cash Flows

  • Shows a company’s financial position at a single point in time
  • Shows how much a company makes over a period of time
  • Shows how much cash a company generates over a period of time

Assets = Liabilities + Equity

Revenue – Costs = Profit

Profit + Non-Cash Costs = Cash Flow

the income statement
The Income Statement

The income statement tells you the following information

the balance sheet
The Balance Sheet

The balance sheet provides a snapshot of your financial position at a single moment in time

in focus depreciation amortization
Example: You buy a factory for $100mm

you pay cash upfront

You expect to use the factory for 20 years

So, even though you pay $100mm cash in the first year, you spread the expanse equally over 20 years on your income statement

i.e., $5mm/year for 20 years

this $5mm annual cost is called “Depreciation”

In Focus: Depreciation & Amortization

Understanding depreciation & amortization is key to understanding accrual accounting—the rest is just details

What is Accrual Accounting?

What Is Depreciation & Amortization?

  • Example: In 2004, you buy a sweater for $30 to sell in 2005
    • rather than take a charge for $30 in 2004, you wait to take a charge until 2005
    • this principle is called “matching”

Accrual accounting matches a cost to when you benefit from it (e.g., when you sell something)

In short, depreciation takes a large, one-time cost and matches it over time to sales of goods produced by the factory

depreciation a visualization
Depreciation—A Visualization




















































The information below shows a visualization of how depreciation works

The Initial Purchase

The Estimate


You borrow money to buy a factory for $100mm

You estimate the factory will last 20 years

Year 1

By Year 10

By Year 20

In Year 21

New Factory

statement of cash flows
Statement of Cash Flows

The statement of cash flows bridges accrual accounting and cash accounting

what is the difference between net income and cash flow
What Is the Difference between Net Income and Cash Flow?

Net Income and Cash Flow are each important in their own special way



In theory, differences between net income and cash flow will balance out over the long run—but we can learn a good deal from the short-term differences

linking the financial statements
Linking the Financial Statements

Key to projecting a company’s future financial performance

  • Financial statements are interactive
    • with income and cash flow statements and prior year balance—can calculate most current balance sheet
    • with income statement and two years balance sheet—can calculate cash flow statement
  • Key interactions
    • net income (income statement)
      • first line of cash flow
      • less dividend provides change in shareholders’ equity on balance sheet
    • net change in cash (bottom of cash flow)—indicates change in cash on balance sheet
    • cash and debt (on balance sheet)—average over one year determines interest income and expense (respectively) on income statement
how do the statements link
How Do the Statements Link?

The three financial statements are interlinked—this is why a financial model includes all three

The above shows some key relationships, but by no means is all inclusive—this is what makes attention to detail in financial modelling so important

how bankers use financial statements
How Bankers Use Financial Statements

Financial statements are basic to much of the work investment bankers do

Some Uses of Financial Statements

Example: Benchmarking

  • Profitability margin benchmarking
  • Base for forward projections
  • Accretion/(dilution) analysis
  • Financing models
  • Valuation multiples
  • Potential value creation models
  • Source of data on key industry trends
  • And much, much more

Source: Company reports


1 Includes Beiersdorf, Clorox, Colgate-Palmolive, Estée Lauder, Kimberly-Clark, L’Oréal and P&G

2 Includes Beiersdorf, Clarins, Estée Lauder and L’Oréal

3 Based on broker estimates; COGS calculated as purchases and variation in inventories, 75% of personnel costs and depreciation; 2004 figures adjusted per IAS 18 to deduct €828mm in sales incentives and €52mm in cash discounts to customers from net sales and SG&A in compliance with IFRS standards

Investment bankers use financial statements every day

The above chart raises questions about Avon and Esteé Lauder—why might they be so far apart on this metric when both sell cosmetics?

appendix b


Understanding Debt and Equity

what is debt
What Is Debt?

Debt is one way a company can get cash to fund its business needs


How Does Debt Impact a Company?

  • Debt is money that a company borrows
  • Companies typically borrow money by issuing bonds or drawing on a credit line (similar to a credit card)
  • A company typically has to pay interest on debt
    • paying interest requires cash
  • Eventually, the company must repay the debt
    • another alternative is borrowing new debt to pay down the original debt
what is equity
What Is Equity?

Equity is another way a company can get cash to fund its business needs


How Does Equity Impact a Company?

  • Equity is an ownership stake in a company
  • A company can raise money by offering ownership stakes in the company in exchange for cash
  • The equity holders of a company together represent 100% of the ownership of a company
  • Owners are entitled to a share of the profits (after debt holders receive interest)
  • Profits may be paid out in the form of dividends
    • or equity holders may vote to reinvest them in the company and grow the business
what is a capital structure
What Is a Capital Structure?

Debt and Equity together form a “capital structure”

Building a Capital Structure

Examples of Capital Structures

A capital structure is built as follows:

High Debt-to-Cap

  • Debt = Total money borrowed
  • Equity = Total shares outstanding x share price
    • note: this is called a company’s “market value”

Low Debt-to-Cap

Together debt and equity show the total of all a company’s funding—or “Total Capitalization”

why would a company issue debt vs equity
Why Would a Company Issue Debt vs Equity?

Debt and Equity each have strengths and weaknesses as a way of raising money



  • Does not reduce (“dilute”) current ownership
  • Investors do not require as high a rate of return
    • because it is less risky for investors
  • Does not require interest payments
    • no bankruptcy risk
  • Requires stable cash flows to cover interest payments
    • exposes company to bankruptcy risk in bad times
  • Dilutes current ownership
    • if a company has 100 shares and sells another 100 shares (for a total of 200 shares), the original shareholders own half as much as before
  • Investors require a higher rate of return given less certainty of returns

Balancing these issues creates a unique “optimal capital structure” for every company

appendix c


Valuing a Company

three key valuation methods
Three Key Valuation Methods

Bankers use three key methods to value companies

what are multiples
What Are Multiples?





















Multiples are used as a way to benchmark valuation for assets of different sizes

  • Imagine the street below with houses for sale—are they all fairly priced?

Example:House Prices on Hillhouse Avenue

  • Given that the houses are different sizes, it is more meaningful to look at their price as a multiple—in this case price per square foot

Example:House Prices Using Multiples

understanding ev ebitda and p e
Understanding EV/EBITDA and P/E

Just as real estate agents use price per square foot as a uniform measure for houses, investment bankers use EV/EBITDA and P/E to compare companies of different sizes



  • EV = Enterprise Value
    • debt (minus cash) + market value of equity
    • represents all sources of funding
  • EBITDA = an approximation of cash flow
  • Tells you how valuable a company is based on how much cash the operations generate relative to how much funding they required
  • P = Stock price
    • can also use market value of equity
  • E = Earnings per Share (“EPS”)
    • can also use net income
  • Tells you how valuable a company’s stock is relative to current EPS
    • expect companies with higher growth to be “more expensive” (i.e., have a higher P/E)

Different industries may rely more on one metric than the other depending on whether cash flow or net income is a more meaningful measure of performance

discounted cash flow analysis
Discounted Cash Flow Analysis

Discounted Cash Flow analysis is driven by two key concepts—time value of money and free cash flow

Understanding the Time Value of Money

Understanding Free Cash Flow

  • Money today is worth more than money tomorrow
  • Why might this be the case?
    • if you owe me $100 and pay today, I can invest it
    • if you pay me $100 in one year, I lose a year of investing it
    • so I will take the money now, thank you
      • or you can pay me interest until you pay me
  • Free cash flow is cash flow available to all providers of capital (lenders/shareholders)
  • Calculated as:


+/– Change in Working Capital

– Capital Expenditures

= Free Cash Flow

A company can be described as paying back its equity holders over time by generating cash flow

Free cash flow is all the cash flow available to pay interest to lenders or dividends1 to shareholders


1 Cash can also be reinvested to grow the business, making ownership share more valuable

discounted cash flow analysis1
Discounted Cash Flow Analysis

The table below shows an example of a discounted cash flow analysis

Discount Rate

Terminal Value

  • The discount rate represents an investors expected rate of return if they invested money today
  • Bankers use the WACC (Weighted Average Cost of Capital) formula as a discount rate takes debt and equity returns into account
  • Cuts off projections at a certain point in time
    • difficult to know business will perform in 20 or 30 years
  • Effectively a set of simplifying assumptions
    • typically based on cash flow in last year of projections and expected free cash flow growth thereafter

DCF Example

appendix d


Terms to Know

terms to know
Terms to Know
  • Product group
    • investment banking group that focuses on a method of transaction or financing tool
      • mergers & acquisitions, equity capital markets, debt capital markets
    • cover all industry groups
  • Industry group
    • investment banking group that focuses on a specific industry
      • consumer products, media, telecom, global industrial
    • covers all product groups
  • Premium
    • the amount at which something is valued above its par or nominal value
  • Discount
    • the amount at which something is valued below its par or nominal value
  • Bull market
    • characterized by prolonged rise in prices of stocks, bonds, or commodities
      • “buy” market with high trading volumes
      • considered a good market because investors make money
      • investors “charge ahead” like bulls
  • Bear market
    • characterized by prolonged period of falling prices for stocks, bonds, or commodities
      • “sell” market due to anticipation of declining market activity
      • interest rates on bonds increase during such a period

− investors choose to avoid risk, buy bonds

      • considered a bad market because investors lose money
      • investors “hibernate” like bears
terms to know1
Terms to Know
  • Equity value
    • equity value = share price x number of shares outstanding
      • value of shareholders’ interest
  • Enterprise value
    • enterprise value = equity value + debt – cash
      • includes all forms of capital
      • main difference between equity value & enterprise value:

− enterprise value includes net debt (debt – cash)

  • EBIT (Earnings Before Interest & Taxes)
    • also called operating income
    • income from operations before the effects of financing and taxes
    • measure of profitability independent of capital structure
  • EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)
    • income from operations before the effects of financing, taxes, and non-cash expenses
    • proxy for free cash flow, but a poor one
  • Multiples
    • also called ratios
    • provide a measure of relative valuation to an underlying financial (operating) statistic
    • equation: valuation statistic/operating statistic
      • Enterprise Value/Revenues, Enterprise Value/EBITDA, P/E
    • allow for relative comparisons between similar companies
  • Margins
    • equation: operating statistic/revenues
      • Gross Profit/Revenues, EBITDA/Revenues, EBIT/Revenues, Net Income/Revenues
terms to know2
Terms to Know
  • Free cash flow
    • cash flow available to all providers of finance
    • one measurement used in forecasting future performance
    • EBITDA is a proxy for free cash flow, but a poor one
  • Working capital
    • working capital = current assets – current liabilities
    • funds invested in a company’s cash
    • finances the cash conversion cycle of a business:
      • time required to convert raw materials into finished goods, finished goods into sales, and accounts receivables into cash
  • WACC (Weighted Average Cost of Capital)
    • used in determining discount rate employed to calculate the net present value (NPV) of future cash flows in discounted cash flow (DCF) analysis
    • return commensurate with risk of the investment
  • Time value of money equations
    • present value (PV) = FV/(1 + r)
    • future value (FV) = PV * (1 + r)
      • note: r = discount rate
contact information
Contact Information

UBS Securities LLC

299 Park AvenueNew York NY 10171Tel. +1-212-821 3000

UBS Investment Bank is a business group of UBS AGUBS Securities LLC is a subsidiary of UBS AG