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Investment Banking For Dummies®
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Investment Banking For Dummies®
by Matthew Krantz, Robert R. Johnson
Investment Banking For Dummies, 2nd Edition
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
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
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
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
Part 4: Applying Investment Banking
Chapter 15: Knowing the Rules
The History of Regulation of Investment Banking
The Ins and Outs of Modern Investment Banking Rules
The Rules on Analysts
Why Simply Making Rules Isn’t Enough
Chapter 16: How Some Companies Lie, Cheat, and Steal Their Way to the Top
Did You Really Sell That? When Companies Aggressively Report Revenue
Lucy, You Got Some ’Splainin’ to Do: When Companies Understate Their Expenses
Missed It by That Much: When Companies Overstate Their Financial Position
Keeping Investors Off-Balance
What Should an Investment Banker Do?
Chapter 17: Understanding Alternative Investments and Asset Management
Knowing Your Alternatives
Digging Into Asset Management
Managing Potential Conflicts with Clients
Chapter 18: Trying Your Hand at Investment Banking with a Case Study
Setting the Scene
Considering the Options
Creating the Analysis
Structuring a Deal
Success or Failure
Part 5: The Part of Tens
Chapter 19: Ten of the Biggest Debacles in Investment Banking History
The Dot-Com Boom and Bust
Tainted Research Scandals
Enron and the Accounting Scams
The Mortgage Debacle and Collapse of Lehman
The Flash Crash
The London Whale at JPMorgan Chase and Barings Bank
Long-Term Capital Management
Bankruptcy in Jefferson County, Alabama
IPO Allocations with CSFB
Bad Mergers and Acquisitions Like AOL Time Warner
Chapter 20: Ten Ways to Improve a Discounted Cash Flow Analysis
Financial Analysis Isn’t Physics
Show Your Sensitive Side
Monte Carlo Isn’t Just for High Rollers
What Can Go Wrong Will Go Wrong
It’s Tough to Make Predictions, Especially about the Future
The Investor of Today Doesn’t Profit from Yesterday’s Growth
Garbage In, Garbage Out
Rates Are Falling — It’s a Better Deal!
Read Your Putt from Several Angles
The Weighting Is the Hardest Part
Chapter 21: Ten (Or So) of the Best Online Resources for Investment Bankers
Bloomberg
Reuters
Standard & Poor’s
Renaissance Capital and IPOScoop.com
The Securities and Exchange Commission
Moody’s
MarketSmith
Index Fund Advisors
Morningstar
Bureau of Labor Statistics
Department of Commerce
Federal Reserve
Trefis
Appendix: Where Investment Banking Came From
The Roots of Investment Banking
Banking Catches On in the United States
Index
About the Authors
Advertisement Page
Connect with Dummies
End User License Agreement
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Prev
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Title Page
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Introduction
Investment Banking For Dummies®
To view this book's Cheat Sheet, simply go to
www.dummies.com
and search for “Investment Banking For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
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
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
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
Part 4: Applying Investment Banking
Chapter 15: Knowing the Rules
The History of Regulation of Investment Banking
The Ins and Outs of Modern Investment Banking Rules
The Rules on Analysts
Why Simply Making Rules Isn’t Enough
Chapter 16: How Some Companies Lie, Cheat, and Steal Their Way to the Top
Did You Really Sell That? When Companies Aggressively Report Revenue
Lucy, You Got Some ’Splainin’ to Do: When Companies Understate Their Expenses
Missed It by That Much: When Companies Overstate Their Financial Position
Keeping Investors Off-Balance
What Should an Investment Banker Do?
Chapter 17: Understanding Alternative Investments and Asset Management
Knowing Your Alternatives
Digging Into Asset Management
Managing Potential Conflicts with Clients
Chapter 18: Trying Your Hand at Investment Banking with a Case Study
Setting the Scene
Considering the Options
Creating the Analysis
Structuring a Deal
Success or Failure
Part 5: The Part of Tens
Chapter 19: Ten of the Biggest Debacles in Investment Banking History
The Dot-Com Boom and Bust
Tainted Research Scandals
Enron and the Accounting Scams
The Mortgage Debacle and Collapse of Lehman
The Flash Crash
The London Whale at JPMorgan Chase and Barings Bank
Long-Term Capital Management
Bankruptcy in Jefferson County, Alabama
IPO Allocations with CSFB
Bad Mergers and Acquisitions Like AOL Time Warner
Chapter 20: Ten Ways to Improve a Discounted Cash Flow Analysis
Financial Analysis Isn’t Physics
Show Your Sensitive Side
Monte Carlo Isn’t Just for High Rollers
What Can Go Wrong Will Go Wrong
It’s Tough to Make Predictions, Especially about the Future
The Investor of Today Doesn’t Profit from Yesterday’s Growth
Garbage In, Garbage Out
Rates Are Falling — It’s a Better Deal!
Read Your Putt from Several Angles
The Weighting Is the Hardest Part
Chapter 21: Ten (Or So) of the Best Online Resources for Investment Bankers
Bloomberg
Reuters
Standard & Poor’s
Renaissance Capital and IPOScoop.com
The Securities and Exchange Commission
Moody’s
MarketSmith
Index Fund Advisors
Morningstar
Bureau of Labor Statistics
Department of Commerce
Federal Reserve
Trefis
Appendix: Where Investment Banking Came From
The Roots of Investment Banking
Banking Catches On in the United States
Index
About the Authors
Advertisement Page
Connect with Dummies
End User License Agreement
List of Tables
Chapter 1
TABLE 1-1 Among the Last Banks Standing
Chapter 2
TABLE 2-1 Biggest U.S. Merger Offers of 2019
TABLE 2-2 Number of U.S. IPOs, 2014–2018
Chapter 3
TABLE 3-1 When Internet IPOs Ruled the Market
Chapter 7
TABLE 7-1 Putting Hershey’s Balance Sheet into Perspective
Chapter 8
TABLE 8-1 Debt-to-Equity Ratios by Industry
TABLE 8-2 Net Margin by Industry
TABLE 8-3 Calculating Hershey’s Return on Capital
TABLE 8-4 Hershey’s Growth Trends
Chapter 9
TABLE 9-1 The 11 Sectors
TABLE 9-2 Dell’s Revenue and Capital Spending
TABLE 9-3 Dell’s Revenue and Capital-Spending Trends
TABLE 9-4 Computer Hardware Trends
TABLE 9-5 The New Dell’s Revenue and Capital-Spending Trends
TABLE 9-6 Comparing Balance Sheets
TABLE 9-7 Common Sizing Delta’s 2012 Income Statement
TABLE 9-8 Common Sizing Delta’s Rivals
TABLE 9-9 S&P 500’s P/E through Time
TABLE 9-10 Calculating EV/EBITDA for Hershey in 2018
TABLE 9-11 Comparing EV/EBITDA
TABLE 9-12 Comparing Total Debt-to-Equity
Chapter 10
TABLE 10-1 Where Stock Investors Get Return on S&P 500
TABLE 10-2 Breaking Down Red Hat’s Buyout Ratios
Chapter 11
TABLE 11-1 Statistics for Various Asset Classes Based on Annual Returns (1926–20...
TABLE 11-2 The Duration of a 5 Percent Coupon, Ten-Year Bond with a Yield to Mat...
Chapter 12
TABLE 12-1 Betas for Stocks as of October 25, 2019
TABLE 12-2 Firm Value (in Billions) for Various WACCs and Growth Rates
Chapter 14
TABLE 14-1 Return on Equity for Coca-Cola
TABLE 14-2 Financial Statements for the Coca-Cola Company (in Millions of Dollar...
TABLE 14-3 Financial Data for PepsiCo and Coca-Cola (in Millions of Dollars)
TABLE 14-4 Three-Factor DuPont Analysis for PepsiCo and the Coca-Cola Company
Chapter 16
TABLE 16-1 Assumed Rates of Return on Pension Plan Assets
TABLE 16-2 Discount Rates Used to Determine Pension Liabilities
Chapter 18
TABLE 18-1 Income Statements
TABLE 18-2 Balance Sheets
TABLE 18-3 Additional Data
TABLE 18-4 Performance Ade’s Pro Forma Balance Sheet
TABLE 18-5 Performance Ade’s Pro Forma Income Statement
Chapter 19
TABLE 19-1 Biggest First-Day Pops
TABLE 19-2 Largest Publicly Traded Bankruptcy Filings
List of Illustrations
Chapter 3
FIGURE 3-1: A page of a research report from CFRA.
Chapter 6
FIGURE 6-1: The Company Filings link on the SEC home page.
FIGURE 6-2: The EDGAR database listing shows you all the filings that are avail...
FIGURE 6-3: GE’s 10-K filing contains a number of documents.
FIGURE 6-4: Excel for Android and iOS allows you to import a table of data by t...
Chapter 11
FIGURE 11-1: A typical U.S. Treasury yield curve.
Guide
Cover
Table of Contents
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