Matthew Krantz - Investment Banking For Dummies

Investment Banking For Dummies®, 2nd Edition

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Copyright © 2020 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2020934912

ISBN 978-1-119-65859-7 (pbk); ISBN 978-1-119-74871-7 (ebk); ISBN 978-1-119-74872-4 (ebk)

1 Cover

2 Introduction Introduction Investment banking is the fuel of capitalism. Human progress takes money and ideas. But more times than not, the people with the money aren’t the same ones with the ideas. Having a mound of cash and no creative ideas only creates a mound of money. Meanwhile, an entrepreneur with all kinds of dreams can’t even break ground if there’s no cash to break ground with. Enter investment banking. Investment banking has been mankind’s solution to pairing up the people with money and the people with ideas. The combination of money, or capital, and entrepreneurship is a dynamic marriage that’s behind some of mankind’s greatest accomplishments. Investment banking has financed ’round-the-world trade expeditions and built railroads and bridges. Given the great role investment banking plays in the financial system, it has taken on a larger-than-life mystique with the masses. Many people suspect that investment banks are pulling the strings of the economy, but they may not know enough to realize exactly what investment banks do. Get ready to take a peek into the private and important world of investment banking. This book could just have easily been called Wall Street For Dummies, because it’s your guide into the complex but pivotal world that Wall Street plays in making the financial system work. We wrote this book not only to help you understand what’s done on Wall Street, but also to show you how to use some of the financial tools that help measure financial performance. After reading this book, you’ll know how Wall Street works, and how to put its secrets to work for you. About This Book Foolish Assumptions Icons Used in This Book Beyond the Book Where to Go from Here

3 Part 1: Getting Started with Investment Banking Chapter 1: Introducing Investment Banking What Investment Banking Is How Investment Banking Is Done Turning Into an Investment Banking Pro Putting Investment Banking to Work Chapter 2: The Purpose of Investment Banking: What Investment Bankers Do Putting the For-Sale Sign on Corporate America Helping Investors Decide Whether to Buy or Sell Digging Into the Role of the Trading Desk Chapter 3: How Investment Bankers Sell Companies Getting Companies Ready for Sale on Public Markets Seeing What Sell-Side Analysts Do Examining a Sample Research Report Chapter 4: How Investment Banking Is Used in Mergers and Acquisitions Come Here Often? The Basics of Mergers and Acquisitions Tools Used to Analyze the M&A Deal Why Many M&A Deals Go Wrong Chapter 5: How Investment Banking Is Used in Leveraged Buyouts In This Corner: Introducing the Players Aiming for the Right Targets in a Leveraged Buyout Finding the Exit

4 Part 2: Digging In: Performing Investment Banking Chapter 6: Finding the Data: Documents and Reports Finding What You Need on the Securities and Exchange Commission’s Website Getting Data in a Format You Can Work With Paying Attention to the Non-Financial Information Chapter 7: Making Sense of Financial Statements Income Statements Balance Sheets Statement of Cash Flows Proxy Statements Chapter 8: Perfecting the Financial Ratios for Investment Banking Valuation Multiples: Assessing How Much the Company Is Worth Liquidity Multiples: Checking Companies’ Staying Power Profitability Ratios: Seeing How a Company’s Bottom Line Measures Up Efficiency Ratios: Knowing How Well the Company Is Using Investors’ Money Chapter 9: Sizing Up the Industry Performing an Industry Analysis Unearthing Company Trends and Common sizing the Financial Statements How a Company Stacks Up: Comparing the Key Ratios Chapter 10: Understanding Stocks and Focusing on Past Transactions Introducing Stock Finding Past Transactions Analyzing Past Transactions Chapter 11: Applying Investment Banking to Fixed Income Introducing Bonds Identifying the Various Types of Bonds Knowing Their Place: The Position of Bondholders Understanding Bond Pricing Tracking the Bond Market Debt or Equity: How a Company Chooses

5 Part 3: Taking Investment Banking to the Next Level Chapter 12: Doing a Discounted Free Cash Flow Analysis Gearing Up for Discounted Free Cash Flow Calculating the Weighted Average Cost of Capital Going for Terminal Value Valuing a Share of Stock Chapter 13: Structuring a Leveraged Buyout Seeing How Leveraged Buyouts Are Structured Building a Leveraged Buyout Model Chapter 14: Determining the Strength of a Company’s Return on Equity Understanding the Importance of Return on Equity Using a DuPont Analysis Interpreting the Results