Investment Banking Paper

Firstly, the success of an investment banker depends largely on his/her communication ability, including inter-personal skill and teamwork. Customers of investment banks are mainly corporations and the amounts of transactions are at least in millions. An investment banker’s advice and judgment may affect the future performance of a company. It is vital to achieve trust from your clients. On the other hand, complex projects require teamwork. A banker needs information about the client as much as possible. For example, to identify a universe of comparable precedent transactions, a banker has to consult with peers or senior colleagues with first-hand knowledge of relevant information.

The professionalism and ethics are also essential. The professional background is far more than finance theories. Talented bankers need to have strong analytical and mathematical skills, even knowledge of computer and law. They also need to track the market trend and macroeconomic environment. Investment bank is a high risk and a high reward profession, which requires toleration for taking risks and strong sense of ethics. I think the case of Lehman Brother alerts everyone.

Actually, it is hard to identify single most important skill of a successful investment banker. A brilliant investment banker should have ability to synthesize multiple skills.

Q3. Accounting information is inadequate to perform a discounted cash flow analysis. DCF is less affected by accounting practices and assumptions because it is based on the target company’s ability of generating cash flows in the future, while the accounting, under accrual basis, is reflection of historical performance. Earnings and book value can be clouded by accounting gimmicks so it is not a completely realistic set of financial profile, but faking cash flow is tougher. Although the past accounting performance works as a reference of forecast, we need to identify more performance drivers, including internal and external.