Finance workshop

IAfinancialworkshop iafinancialworkshop@gmail.com

Investment Banking Workshop

Program Objective

The key objective of this training program is to prepare participants for “Careers
in investment banking” This one-day course aims to provide a "Toolkit" for a successful
.
career in investment banking (Advisory + Markets). The course is "Case-based" and will
aim at preparing students for recruiting events in investment banks and consulting firms.
There is no pre-requisite finance knowledge in attending this course. This course is
practical in rigor and is case based.

Course Outline

Investment Banks: Landscape
Finance 101
Advisory: M&A, PE and VC
Markets: Products, Market Making
Interviews: How do I make the cut?

Time & Venue 5 hrs; Venue TBD

Trainer
The trainer is currently employed by a bulge-bracket investment bank. Prior to his
current role, he was a trader at an investment bank on Wall Street. In addition, the faculty
has worked on investment banking advisory deals and corporate strategy mandates.

Workshop Pre-requisites

Bring notepad, pen; course materials will be distributed during the workshop
Bring your calculator
Laptops are optional


Corporate Finance: Sample Glossary of Terms

Balance Sheet: A balance sheet provides detailed information about a company’ assets,
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liabilities and shareholders’equity.

Assets: Assets are things that a company owns that have value. This typically means they
can either be sold or used by the company to make products or provide services that can
be sold. Assets include physical property, such as plants, trucks, equipment and
inventory. It also includes things that can’ be touched but nevertheless exist and have
t
value, such as trademarks and patents. And cash itself is an asset. So are investments a
company makes.

Current Assets are things a company expects to convert to cash within one year. A good
example is inventory. Most companies expect to sell their inventory for cash within one
year.

Noncurrent Assets are things a company does not expect to convert to cash within one
year or that would take longer than one year to sell. Noncurrent assets include fixed
assets. Fixed assets are those assets used to operate the business but that are not available
for sale, such as trucks, office furniture and other property.

Liabilities: Liabilities are amounts of money that a company owes to others. This can
include all kinds of obligations, like money borrowed from a bank to launch a new
product, rent for use of a building, money owed to suppliers for materials, payroll a
company owes to its employees, environmental cleanup costs, or taxes owed to the
government. Liabilities also include obligations to provide goods or services to customers
in the future.

Liabilities are said to be either current or long-term. Current liabilities are obligations a
company expects to pay off within the year. Long-term liabilities are obligations due
more than one year away.

Shareholders’equity is sometimes called capital or net worth. It’ the money that would
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be left if a company sold all of its assets and paid off all of its liabilities. This leftover
money belongs to the shareholders, or the owners, of the company.

Assets = Liabilities + Equities

Shareholders’equity is the amount owners invested in the company’ stock plus or minus
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the company’ earnings or losses since inception. Sometimes companies distribute
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earnings, instead of retaining them. These distributions are called dividends.


Income Statement: An income statement is a report that shows how much revenue a
company earned over a specific time period (usually for a year or some portion of a year).
An income statement also shows the costs and expenses associated with earning that
revenue. The literal “ bottom line” of the statement usually shows the company’ net s
earnings or losses. This tells you how much the company earned or lost over the period.

Income statements also report earnings per share (or “EPS” This calculation tells you
).
how much money shareholders would receive if the company decided to distribute all of
the net earnings for the period. (Companies almost never distribute all of their earnings.
Usually they reinvest them in the business.)

Depreciation takes into account the wear and tear on some assets, such as machinery,
tools and furniture, which are used over the long term. Companies spread the cost of
these assets over the periods they are used. This process of spreading these costs is called
depreciation or amortization. The “ charge” for using these assets during the period is a
fraction of the original cost of the assets.

Earnings per Share or EPS: Most income statements include a calculation of earnings per
share or EPS. This calculation tells you how much money shareholders would receive for
each share of stock they own if the company distributed all of its net income for the
period. To calculate EPS, you take the total net income and divide it by the number of
outstanding shares of the company.

Cash Flow Statement: Cash flow statements report a company’ inflows and outflows of
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cash. This is important because a company needs to have enough cash on hand to pay its
expenses and purchase assets. While an income statement can tell you whether a
company made a profit, a cash flow statement can tell you whether the company
generated cash.

A cash flow statement shows changes over time rather than absolute dollar amounts at a
point in time. It uses and reorders the information from a company’ balance sheet and
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income statement.

The bottom line of the cash flow statement shows the net increase or decrease in cash for
the period. Generally, cash flow statements are divided into three main parts. Each part
reviews the cash flow from one of three types of activities: (1) operating activities; (2)
investing activities; and (3) financing activities.

Operating Activities: The first part of a cash flow statement analyzes a company’ cashs
flow from net income or losses. For most companies, this section of the cash flow
statement reconciles the net income (as shown on the income statement) to the actual
cash the company received from or used in its operating activities. To do this, it adjusts
net income for any non-cash items (such as adding back depreciation expenses) and
adjusts for any cash that was used or provided by other operating assets and liabilities.


Investing Activities: The second part of a cash flow statement shows the cash flow from
all investing activities, which generally include purchases or sales of long-term assets,
such as property, plant and equipment, as well as investment securities. If a company
buys a piece of machinery, the cash flow statement would reflect this activity as a cash
outflow from investing activities because it used cash. If the company decided to sell off
some investments from an investment portfolio, the proceeds from the sales would show
up as a cash inflow from investing activities because it provided cash.

Financing Activities: The third part of a cash flow statement shows the cash flow from all
financing activities. Typical sources of cash flow include cash raised by selling stocks
and bonds or borrowing from banks. Likewise, paying back a bank loan would show up
as a use of cash flow.

Financial Statement Ratios and Calculations

Debt-to-equity ratio compares a company’ total debt to shareholders’equity. Both of
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these numbers can be found on a company’ balance sheet. To calculate debt-to-equity
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ratio, you divide a company’ total liabilities by its shareholder equity, or
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Debt-to-Equity Ratio = Total Liabilities / Shareholders’ Equity
If a company has a debt-to-equity ratio of 2 to 1, it means that the company has two
dollars of debt to every one dollar shareholders invest in the company. In other words, the
company is taking on debt at twice the rate that its owners are investing in the company.

Inventory turnover ratio compares a company’ cost of sales on its income statement with
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its average inventory balance for the period. To calculate the average inventory balance
for the period, look at the inventory numbers listed on the balance sheet. Take the balance
listed for the period of the report and add it to the balance listed for the previous
comparable period, and then divide by two. (Remember that balance sheets are snapshots
in time. So the inventory balance for the previous period is the beginning balance for the
current period, and the inventory balance for the current period is the ending balance.) To
calculate the inventory turnover ratio, you divide a company’ cost of sales (just below
s
the net revenues on the income statement) by the average inventory for the period, or

Inventory Turnover Ratio = Cost of Sales / Average Inventory for the Period
If a company has an inventory turnover ratio of 2 to 1, it means that the company’
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inventory turned over twice in the reporting period.

Operating margin compares a company’ operating income to net revenues. Both of these
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numbers can be found on a company’ income statement. To calculate operating margin,
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you divide a company’ income from operations (before interest and income tax
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expenses) by its net revenues, or

Operating Margin = Income from Operations / Net Revenues
Operating margin is usually expressed as a percentage. It shows, for each dollar of sales,
what percentage was profit.


P/E ratio compares a company’ common stock price with its earnings per share. To
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calculate a company’ P/E ratio, you divide a company’ stock price by its earnings per
s s
share, or

P/E Ratio = Price per share / Earnings per share

If a company’ stock is selling at $20 per share and the company is earning $2 per share,
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then the company’ P/E Ratio is 10 to 1. The company’ stock is selling at 10 times its
s s
earnings.

Working capital is the money leftover if a company paid its current liabilities (that is, its
debts due within one-year of the date of the balance sheet) from its current assets.

Working Capital = Current Assets –Current Liabilities

Source: sec.gov


Snippets of Macro Overview

In cutting the U.S. one step to AA+ on Aug. 5, S&P cited the weakening
“effectiveness, stability and predictability of American policymaking and political
institutions.” Warren Buffett, the world’ most successful investor, said S&P erred and
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the U.S. should be rated “ quadruple-A.” So, does that make demand for US Treasuries
.
weaker? De0mand for U.S. debt was on display on August 10, 2011 as the Treasury
auctioned $24 billion of 10-year notes at a record-low yield of 2.14 percent. The bid-to-
cover ratio, a gauge of demand which compares total bids with the amount of securities
offered, was 3.22, versus an average of 3.11 at the previous 10 sales. The amount of
marketable U.S. government debt outstanding has risen to $9.4 trillion from $4.34 trillion
in mid-2007 as the government borrowed to bail out the nation’ banking system and
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spurs the economy out of recession. The U.S. is poised to run a budget deficit of $1.6
trillion this fiscal year. Yields on corporate bonds rated AAA have risen from 58 basis
points more than Treasuries in April. The spread averaged about 75 basis points, or 0.75
percentage point, from 1998 through 2001, the last time the U.S. had budget surpluses.
“This is indicative of investors viewing Treasuries as the risk-free benchmark,”said John
Milne.

J&J’ Company position: Is it mightier than US credit?
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J&J bonds yield 57 basis points on average more than similar-maturity Treasuries,
Bank of America Merrill Lynch index data show. Securities issued by Redmond,
Washington-based Microsoft, the world’ largest software maker, pay a spread of 55
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basis points. J&J, based in New Brunswick, New Jersey, had $29.7 billion of cash and
short-term investments as of July 3, compared with $13.7 billion of long-term debt,
according to a regulatory filing. That ratio, combined with the company’ stable and
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geographically diverse businesses, accounts for its top rating, according to Michael
Kaplan, a managing director at S&P. “ They have more cash than debt on their balance
sheet,” Kaplan said in a telephone interview Aug. 10. “ s general knowledge that the
It’
U.S. government has a lot more debt relative to those factors that we consider important
than J&J does. Based on our criteria, J&J is a stronger credit.”So, if we believe J&J is a
stronger credit; why does J&J trade wider than US treasuries?

Are all ratings comparable?

Ratings should represent the same level of creditworthiness across the spectrum of
assets, S&P President Deven Sharma said in a speech on Sept. 21. “ goal is to have
Our
our AAA ratings, or our A ratings, reflect a comparable view of creditworthiness in one
asset class, or one country, as any other, whether it is applied to a Japanese bank or a U.S.
municipal,” Sharma said. It’ not unprecedented for a country to have domestic
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companies that are rated higher than their government while paying bigger yields on their
debt. Sao Paulo-based Cia. de Bebidas das Americas, or Ambev, is Latin America’ s


largest brewer and is rated A- by S&P. Its notes due in September 2013 yield 1.64
percent, according to Trace, the bond-price reporting system of the Financial Industry
Regulatory Authority. Those of BBB- ranked Brazil that mature in June 2013 yield 0.8
percent, Bloomberg data show.

Sovereign Borrowers

S&P gives 18 sovereign borrowers its top AAA ranking, including Australia, Hong
Kong, France and the Isle of Man, according to a July report. The U.K., which is
estimated to have debt that is 80 percent of its gross domestic product this year, or 6
percentage points higher than the U.S., also has the top credit grade. Is UK next?

Source: "Clarity Eludes Investors as AAA Companies Yield More Than U.S." by By
John Detrixhe and Zeke Faux

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