How to Be an Investment Banker, + Website: Recruiting, Interviewing, and Landing the Job

**A top-notch resource for anyone who wants to break into the demanding world of investment banking**For undergraduates and MBA students, this book offers the perfect preparation for the demanding and rigorous investment banking recruitment process. It features an overview of investment banking and careers in the field, followed by chapters on the core accounting and finance skills that make up the necessary framework for success as a junior investment banker. The book then moves on to address the kind of specific technical interview and recruiting questions that students will encounter in the job search process, making this the ideal resource for anyone who wants to enter the field. * The ideal test prep resource for undergraduates and MBA students trying to break into investment banking * Based on author Andrew Gutmann's proprietary 24 to 30-hour course * Features powerful learning tools, including sample interview questions and answers and online resources For anyone who wants to break into investment banking, How to Be an Investment Banker is the perfect career-making guide. How to Be an Investment Banker 3 Contents 9 Introduction 13 Acknowledgments 21 Chapter 1 Introduction to Investment Banking 25 Overview of an Investment Bank 26 Key Divisions of an Investment Bank 27 Overview of Investment Banking 31 Types of Investment Banking Transactions 32 Pitching 35 Types of Investment Banks 40 Structure of the Investment Banking Division 44 The Life of an Investment Banker 46 Investment Banking Hierarchy 46 The “Work” of an Investment Banker 53 The Lifestyle of an Investment Banker 56 Exit Opportunities 69 Frequently Asked Questions 71 Chapter 2 Accounting Overview 79 Introduction to Accounting 80 Financial Accounting 80 Tax Accounting 80 Managerial Accounting 81 Generally Accepted Accounting Principles (GAAP ) 81 The Income Statement 82 Cash Basis of Accounting 82 Accrual Basis of Accounting 83 Income Statement Overview 84 The Balance Sheet 93 Assets 93 Noncurrent (Long-Term) Assets 95 Liabilities 96 Shareholders’ Equity 98 Additional Balance Sheet Topics 99 The Statement of Cash Flows 107 Cash Flow from Operating Activities 108 Cash Flow from Investing Activities 109 Cash Flow from Financing Activities 109 Cash Flow Statement Example 110 Integrating the Three Financial Statements 112 How Does [Fill in the Blank] Impact the Three Financial Statements? 112 Examples 113 End-of-Chapter Questions 123 Chapter 3 Finance Overview 125 The Financial System 126 Savers 126 Borrowers 127 The Financial Institutions 127 Principles of Finance 131 Time Value of Money 132 Risk and Reward 133 Discount Rate and the Opportunity Cost of Capital 134 Present and Future Value of Cash Flows 135 Introduction to Corporate Finance 138 Decision 1: To Invest or Not to Invest 139 Decision 2: How to Fund the Investment 145 Capital Structure 150 What if There Are No Good Investments? 152 Valuing Securities 154 Bonds 154 Stocks 163 Options and Warrants 165 End-of-Chapter Questions 169 Chapter 4 Financial Statement Analysis 171 Sources of Financial Information 172 Introduction to SEC Filings 172 Types of SEC Filings 173 10-K Overview 176 10-Q Overview 179 Other Data Sources 180 Financial Statement Analysis 182 Overview of Ratio Analysis 183 Growth Statistics 184 Profitability Ratios (Margins) 185 Return Ratios 187 Credit Ratios 189 Activity Ratios 191 Analyzing Different Time Periods 193 Fiscal Year 193 Fiscal Quarter 193 Year-to-Date (YTD) 194 Last Twelve Months (LTM) 194 Calendarization 195 “Normalizing” the Financi als 198 Non-Recurring Items 198 Sources for Finding Adjustments 199 Adjusting the Income Statement 200 End-of-Chapter Questions 201 Chapter 5 Valuation 203 Introduction to Valuation 204 The Primary Valuation Methodologies 205 Enterprise Value 206 Valuation Multiples and Relative Value 213 Comparable Company Methodology 218 Step 1: Selecting Comps 219 Step 2: Spreading Comps 223 Step 3: Normalizing the Financials 225 Step 4: Calculating Valuation Multiples 226 Step 5: Analyzing and Applying the Multiples 229 Precedent Transaction Methodology 234 Step 1: Selecting Acquisition Comps 235 Steps 2 and 3: Spreading and Normalizing Acquisition Comps 236 Step 4: Calculating Valuation Multiples 238 Step 5: Analyzing and Applying the Multiples 241 Disc ounted Cash Flow (DCF) Analysis 243 Step 1: Forecasting Free Cash Flow 243 Step 2: Forecasting the Terminal Value 245 Step 3: Estimating the Weighted Average Cost of Capital (WACC) 247 Step 4: Discounting the Cash Flows and Terminal Value 256 Step 5: Running Sensitivity Analysis 259 DCF Conclusions 261 Valuation Conclusions 262 Estimating Equity Value 264 Additional Valuation Considerations 265 Additional Valuation Methodologies 267 End-of-Chapter Questions 269 Chapter 6 Financial Modeling 271 Overview of an Integrated Cash Flow Model 272 Modeling Best Practices 273 Formatting the Model 280 Circularity 282 Building an Integrated Cash Flow Model 286 Step 1: Learn about the Company 286 Step 2: Spread and Normalize the Historical Financial Statements 287 Step 3: Calculating Key Growth Statistics and Financial Ratios 288 Step 4: Selecting Model Assumptions 289 Projecting the Financial Statements 294 Checking the Model and Analyzing the Results 313 End-of-Chapter Questions 316 Chapter 7 Mergers and Acquisitions 317 M&A Overview 317 Acquisition Rationales 318 Mechanics of M&A 323 The M&A Process 326 M&A Sell-Side Process 327 The Role of Investment Bankers on a Buy-Side M&A Deal 333 M&A Analysis 334 Accretion/Dilution Analysis 335 Contribution Analysis 343 Analysis at Various Prices (AVP ) 344 End-of -Chapter Questions 346 Chapter 8 Leveraged Buyouts 347 Overview of LBOs 348 The Miracle of Leverage 348 Overview of Private Equity 350 Role of Investment Bankers 353 LBO Targets 353 Cyclicality of LBO Activity 354 LBO Modeling 355 Steps for Creating an LBO Model 356 Step 1: Purchase and Exit Assumptions 356 Step 2: Sources and Uses 357 Step 3: The Pro Forma Balance Sheet 360 Step 4: Creating the Model 362 Step 5: LBO Analysis 364 LBO Conclusions: Do We Do the Deal? 371 End-of-Chapter Questio ns 372 Chapter 9 Recruiting, Interviewing, and Landing the Job 373 What Are Investment Banks Looking For? 374 Prior Achievement 374 Interest in Being an Investment Banker 376 Intellectual Ability and Analytical Skills 377 Technical Knowledge 377 Communication Skills and Personality 378 The Recruiting Process 378 Recruiting for Summer Internships 379 Recruiting for Full-Time Positions 380 Resumes and Cover Letters 384 Resumes 384 Cover Letters 391 Networking and Informational Interviews 392 Recruiting Receptions 393 Reaching Out to Bankers and Networking 396 Informational Interviews 397 Headhunters 398 Interviewing 399 Preparing for Interviews 400 Scheduling Interviews 400 General Interview Tips 401 Qualitative (Fit) Interview Questions 402 Technical Interview Questions 414 Brainteasers 418 After the Interview 420 Receiving an Offer and Being a Banker 422 Selecting Among Multiple Offers 423 Conclusions 427 Further Reading 429 About the Author 431 About the Companion Website 433 Index 435

Praise for How to Be an Investment Banker

"Andrew Gutmann has written a clear and easy guide for budding investment bankers and finance professionals everywhere. It lives up to its title, providing not only intelligent advice and guidance but a good summary of core financial principles every dealmaker should know."
—Steven M. Davidoff, New York Times "Deal Professor"; Professor of Law and Finance, Michael E. Moritz College of Law, The Ohio State University

"In this book, Andrew demystifies the competitive recruiting process for investment banking jobs. He provides clear and thorough explanations of the technical knowledge needed to ace the interviews and succeed as a banker. Above all, his perspective on the industry will help readers determine for themselves whether this is a career for them. He tells it as he sees it, no holds barred. It's his directness that students find appealing and makes this required reading for anyone seriously considering a career in investment banking."
—Regina Resnick, Associate Dean and Managing Director, Career Management Center, Columbia Business School

"Andrew's book provides a great overview of investment banking recruiting as well as the key technical topics you need to know for interviews and the most important qualitative questions. Unlike a lot of other guides and resources I've seen, he also tells it like it is rather than sugar-coating the truth, which is exactly the right approach to take."
—Brian DeChesare, founder, Mergers & Inquisitions and Breaking Into Wall Street

"Mr. Gutmann's book provides an excellent bridge between classroom finance and real-world application in investment banking. Thoughtfully organized, digestible, and without sugar coating, How to Be an Investment Banker is an essential tool for those considering the pursuit of a job in investment banking."
—Michael F. Malone, Managing Director, Career Management Center, Kellogg School of Management, Northwestern University

"For prospective investment bankers, this book offers an excellent overview of the business and the tools/techniques that should be part of your arsenal. More important, though, the book also offers guidance on seeking out and finding an investment banking job and a reality check on what an investment banker's life is like."
—Aswath Damodaran, Professor of Finance, New York University Stern School of Business and author of Investment Valuation

"Andrew Gutmann has managed to turn his highly useful website into a highly useful book. How to Be an Investment Banker provides a road map for becoming and remaining an investment banker. It is not for the faint of heart."
—Jonathan Knee, author of The Accidental Investment Banker

A top-notch resource for anyone who wants to break into the demanding world of investment banking For undergraduates and MBA students, this book offers the perfect preparation for the demanding and rigorous investment banking recruitment process. It features an overview of investment banking and careers in the field, followed by chapters on the core accounting and finance skills that make up the necessary framework for success as a junior investment banker. The book then moves on to address the kind of specific technical interview and recruiting questions that students will encounter in the job search process, making this the ideal resource for anyone who wants to enter the field. The ideal test prep resource for undergraduates and MBA students trying to break into investment banking Based on author Andrew Gutmann's proprietary 24 to 30-hour course Features powerful learning tools, including sample interview questions and answers and online resources For anyone who wants to break into investment banking, How to Be an Investment Banker is the perfect career-making guide.