Understanding investment banking

2023-10-05
Summary:

Exploring investment banking from financial practitioners' perspective, explaining its concept and functions.

Today, we will explore the insiders of the investment banking business from the perspective of a financial practitioner. Many people may wonder why investment banking professionals wear suits every day and look straight, like high-level figures from movies. Why are those large investment banks, such as Goldman Sachs and JPMorgan Chase, highly anticipated? Let's explore our understanding of the investment banking business together.

Understanding investment banking

Understanding the Investment Banking Business

Let's first understand the concept of investment banking. Investment banking, also known as investment banking, is a part of the financial industry that is mainly responsible for helping companies obtain funds in the capital market to promote their growth and development. The clients of investment banks usually include private companies, listed companies, government agencies, etc., and have no direct relationship with individuals.


So what exactly do investment banks do? In short, investment banks help companies raise funds. Let's give an example: suppose someone loves milk tea and decides to open a milk tea shop. Business is thriving, but expanding scale requires more capital, and the biggest demand at this time is for funds. He may try to borrow money from relatives and friends or look for investors. One way is through equity financing, which involves inviting investors to become shareholders of milk tea shops and share their rights. This means that they share the risks and rewards, which is equity financing.


Another way is through debt financing, where he can borrow money from someone and repay it at a certain interest rate. In this case, he established a debt relationship with investors, which is debt financing.


Xiaoli faces funding needs when expanding her milk tea shop, and the role of an investment bank is reflected in helping her raise these funds. The usual financing methods include equity financing and debt financing, which are the two main aspects of the investment banking business.


An initial public offering (IPO) is an important aspect of equity financing. In this process, investment banks will assist the company in completing various processes, including legal review, accounting audit, and communication with regulatory agencies. Investment banks also play a crucial role in pricing, as the pricing of stock prices not only depends on the company's value but also on the market's demand for it. It is worth noting that the IPO process is very complex, but once successful, the company will gain more capital in the capital market and have the opportunity to obtain higher value.


Equity financing also includes the following: offering and private placement. In private equity financing, companies negotiate privately with investors instead of publicly raising funds, which typically requires meeting fewer regulatory requirements.


On the other hand, debt financing refers to the issuance of bonds by a company to raise funds. During this process, investment banks assist the company in determining the details of bond issuance, including bond terms and interest rates, and negotiate with potential bond investors. Debt financing usually involves large amounts of funds and is crucial for the long-term development of a company.


In addition to financing businesses, investment banks also involve mergers and acquisitions (M&A) businesses. In mergers and acquisitions, a company may wish to acquire another company, merge the two, or sell itself. This behavior typically involves resource integration to reduce costs or improve business operations. Investment banks provide consultation and assistance in this process to assist the company in completing transactions.


The job of an investment bank not only involves financial knowledge but also requires good time management and interpersonal communication skills. In the process of business development, young investment banking practitioners may come into contact with senior management, which is of great significance for building connections and learning experience.


Investment banks are the heroes behind the scenes in the financial world, responsible for helping companies raise funds and carry out mergers and acquisitions and other transactions. They play a crucial role in equity and debt financing, providing important support to the company. Understanding the investment banking business can help the company carry out strategic restructuring. Although investment banking work may be difficult, high salaries and opportunities to acquire rich knowledge make it an attractive career choice. This is a highly specialized field that requires profound financial knowledge and comprehensive qualities. The success of investment banks is not only crucial for the development of companies but also reflects the effective allocation of financial resources, which is the essence of finance.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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