In the spirit of adding some interactivity to this site, please post your comments and suggestions. Also, feel free to post your questions about investment banking and I will try my best to answer them.
-Andrew
Post/Read comments/suggestions/questions here
What is the difference between Equity Value and Shareholder’s Equity?
Yonnic,
Most typically, equity value is a synonym for market value of equity which, for a public company, is equal to the company’s stock price times its number of shares outstanding. In other words, it is the value that the public markets are placing on the company’s stock. Shareholder’s Equity is always an accounting item taken from the balance sheet as the difference between total assets and total liabilities. Shareholder’s Equity is also known as “book value.”
Why does the Enterprise Value formula use “market value of debt, instead of book value? A company’s debt may be trading for 70 cents on the dollar, but I’m not purchasing it from the creditor, I’m purchasing the company and assuming their debt as is contractually obligated. I’m sure there is a false assumption somewhere in here, what am I missing?
Enterprise value represents today’s fair market value of a company’s operations. For the same reason we calculate today’s equity value (using current stock price), we theoretically use today’s market value of debt, not the contractual value from some time in the past. In practice however, we typically use the contractual (balance sheet) value since in non-distressed situations they tend to be about the same.
First of all, thank you for hosting this incredible site for aspiring bankers!
I understand the typical progression “up the ladder” is Analyst -> Associate -> Director/VP -> Managing Director -> C-level Executives.
How “selective” and competitive is each ascension up the ladder?
So, how hard is it to get promoted to Associate if you’re an Analyst? From Associate to Director? From Director to MD? From MD to an executive level?
If you do NOT make it to the next level promotion within the standard career span (i.e. 2 years for Analyst, 3 Years for Associate), what happens to you at the end of that span? Layoff? Or do you simply continue your role? If you continue your role, is there any chance for another promotion opportunity despite the fact that you missed your previous one?
MD to C-level executive is not a natural transition for investment bankers, though it does sometimes happen. I’d say that would be the hardest by far. The next least likely is Analyst to Associate, simply because few Analysts want to stay on after 2 years. After Associate, the promotions aren’t that difficult until MD. If you’ve made it 2-3 years in IB, you are probably good enough and work hard enough to make it at least to Director. Usually getting the MD promotion requires demonstrating the ability to bring in business. Also if for some reason you don’t get the promotion in the year you are supposed to, you might be given one more year. After that you’re probably out. -Andrew
I noticed that you mentioned, “Bankers are expected to work a lot of hours and likewise, get paid a lot of money for working those hours.” In addition, there is the general conception that the financial industry is where the money is.
What is the typical entry level pay for analysts at Bulge Brackets in NYC? What about boutiques in NYC? How much do bonuses contribute?
How does this average salary increase as you move up in positions? How does bonus increase?
And if these typical salaries are on the higher end compared to other industries, could it simply be a result of NYC’s higher cost of living?
Thanks!
H,
I don’t really keep track of compensation anymore but you can check out this site for some good and updated information: https://www.mergersandinquisitions.com/investment-banking-compensation/. The percentage of compensation paid as a bonus (vs salary) increases as you move up the hierarchy. NYC’s higher cost of living plays a small part (finance compensation tends to be higher in NYC and other expensive cities like London or Hong Kong) than it does in smaller less expensive cities but mostly its just that finance pays more than most other industries.
Hi
Can retained earnings be used as a source of cash to fund an M&A transaction?
Not exactly. Retained earnings is an accounting entry reflecting cumulative net income. It is not actual cash. To fund an acquisition, a company needs actual cash (and/or stock). To the extent the company’s net income was actual cash flow (not necessarily the case) and to the extent the company kept the cash on its balance sheet (also, not necessarily the case), then they could use the cash from previous profits to fund the acquisition. -Andrew
How to secure a position of analyst in investment banking division in Dubai if I am a undergraduate student who study in Singapore?
Cynthia, my apologies but I am not very familiar with recruiting in Dubai. -Andrew
Hello Andrew,
You suggested we should focus on the “Money and Investing ” Section of WSJ. However, I cannot find the section on mobile phone and even the website. Does this section still exist currently? If not, can you recommend another alternative section of WSJ?
Thanks,
Yunhao
That’s an old section that doesn’t exist anymore. Now it is called “Business and Finance” -Andrew
What would be a good reason that someone who did a RE PE internship wants to pursue a career full time in Investment Banking?
Real estate is a much narrower and limiting career path than general IB. Also, more dealflow, more interesting dealflow, more modeling, valuation and other learning experiences in IB. -Andrew
Hi Andrew,
Thanks for all the efforts you’ve put on this website and your book!
I’ve noticed that you had worked for HSBC M&A group and Houlihan Lokey, bet that you must have reviewed some many CVs, and I am wondering if you are willing to give us some tips on how to answer the ‘fit’ questions? In brief: as a banker, what qualities do you want to see from the candidates and how do you spot that?
Hi Kyra,
I’ve written about answering fit questions here: https://ibankingfaq.com/category/interviewing-common-qualitative-fit-questions/ and also much more extensively in my book. But very briefly, qualities an interviewer are looking for in a junior investment banker are the right attitude (protectiveness, a desire to succeed, willingness to just shut up and do the job), evidence of hard work (e.g. high GPA, extra-curricular activities), attention to detail, leadership, maturity, interest in finance, etc.
Andrew