Investment Banking and Financial Modelling

Investment Banking

Investment Banking is an integral part of Financial Industry which involves in developing, analysing and evaluating the worth of a Firm/Organization/Company. The Primary motive of an Investment Banking is to create capital for Firms, Companies, Corporations, government, and other institutional Organizations.

Why Companies look for Investment Banking?

Investment Banking helps the companies in the following ways

1. Create new Capital generating avenues to Companies

2. Assist in Mergers & Acquisitions

3. Supports in Corporate Restructuring or Reorganization

4. Provide Guidance in terms of overall Investment

What is Financial Modelling?

Financial Modelling is a process of creating a summary representation (let’s say a Model) of a practical financial situation that reveals the Historical, Current or Projected Value or Financial Performance of an Organization.

A model can be ranged from a simple calculation or formulae to a difficult calculation. Any arithmetic computation used to estimate a value related to corporate finance is termed to be as a Financial Model.

Most used Financial Modelling in the coverage of Banking and Finance Industry are

1. Three Statement Model: This Model is the Basic Model among the various Models. The model name itself Implies three important statements of any business enterprise namely :

  • Statement of Profit and Loss,
  • Cash Flow Statement and
  • Balance Sheet

Under this model, all these statements are interlinked with each other to derive a meaningful information which is relevant for decision making.

2. Merger Model: This is the most advanced as well as prominent model that helps in developing the Proforma for accretion or dilution of a merger or acquisition of an enterprise.

3. Discounted Cash Flow Model: This model is relied on the 3 Statement Model, and is usually used to ascertain the value of an enterprise through Net Present Value of Business cash flows in future.

4. IPO Valuation: Under this model, the Investment Banking or Corporate Professional will calculate the IPO Pricing at which the Investor will be willing to purchase the shares through a critical examination of the company analysis and also Industry analysis.

5. Budget Model: Under this Model, the Professionals determine the budget for an enterprise for the coming years. These Models are based on Quarterly or Monthly Figure which are highly obtained from Income Statement.

Few other Financial Models that are generally useful in the Investment banking domain are:

  • Start-up Valuation Model
  • Dividend Discount Model
  • Consolidation Model
  • Forecast Pricing Model
  • Buyout Model

Having a good command over the Financial Modelling is a prerequisite to enter the Banking and Finance Industry especially Investment Banking, Private Equity and Hedge Funds.

Organizations changed their way of hiring candidates from "Hiring a raw candidate" to "Hiring a candidate having add on value".

If any candidate is looking for an initial career or growth in the domain of Investment banking, in such cases Financial Modelling provides a pathway for their professional development. Organizations are tuning their deep search mode in order to recruit the perfect candidate who is having the specified knowledge and skill set.