Analyst ebook

T he Cor porate F inance Insti tute

T he Anal y s t Tri fec t a

The Analyst Analyst Trifecta ® For more eBooks please visit: corporatenanceinstitute.com/resources/ebooks

corporatenanceinstitute.com

learning@corporatenanceinstitute.com

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2



Table of contents

04

Introduction

08

Analyst Trifecta™ Section 1: Analytics

08

Financial Modeling

09

What is Financial Modeling

18

Types of Financial Models

23

Complete guide to nancial modeling

32

Financial Modeling Skills

36

Valuation

37

Valuation Methods

41

DCF Analysis

44

Business Valuations

49

Excel

50

List of Excel shortcuts

55

Excel formulas cheat sheet

58

Advanced Excel Formulas

65

Analyst Trifecta™ Section 2: Presentation

65

Presentation

66

Investment Banking PitchBook

69

ECM Memo

73

Greensheet

75

Term Sheet

78

Letter of Intent

83

Teaser: The First Glance


3



Table of contents

86

Data Visualization

87

Overview of Dashboards and Data Visualization

94

Types of Graphs

100

Football Field Chart

103

Excel Waterfall Chart

106

Analyst Trifecta™ Section 3: Soft Skills

106

Preparing for an Analyst Role

107

Becoming a Financial Analyst

110

Guide to Getting a Job in Corporate Finance

114

Dealing with Industry Professionals

115

Personal Brand

120 12 0

Oce Politics

126 12 6

Part 1: Networking and Building Relationships within the Company

130


135


139

Advance Your Career


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Introduction

To learn more, please check

To become a world-class nancial analyst, we believe that one must

out our online courses

develop a high level of prociency in three crucial areas: Analytics, Presentations & Documents, and Soft skills. The purpose of this e-book

View courses

is to help you achieve that, and to provide you with the t he proper guidance and general exposure to what analysts do on a day-to-day basis. Regardless of what your occupational situation is (whether you are a university or college student, a new analyst, an experienced analyst or someone who’s looking to change careers), our goal is to equip you with the necessary knowledge and tools to help you succeed in your future or current job in nance. As an analyst, quantitative and analytical skills are mandatory qualications to have. However, to reach your maximum potential, you also need to work on other skills, which are often overlooked, to advance your career. There’s not enough emphasis on presentationmaking skills and social skills, which we think are all equally important for your success. This is why we included these t wo other areas to complete The Analyst Trifecta™. This e-book is divided into three sections: 1. Analytics This section covers the fundamentals of nancial modeling and valuation. We will show you what they are, why they are performed in nance and how to build one from scratch. We will also introduce Excel shortcuts and formulas to improve your eciency with spreadsheets. When we think of an analyst’s role, we readily assume that it’s all about reading nancial statements and working on endless spreadsheets.


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There’s no denying that an analyst’s job can become quite technical. After all, they deal with numbers and perform computations on a regular basis. Building nancial models alone is a complex ta sk that requires deep understanding of both nance and accounting concepts and theories. This may explain why aspiring analysts tend to focus mostly on building their analytical and quantitative skills prior to getting their dream jobs. You do need to develop sincere interest and skills in nancial analysis, company and industry-specic research, and solving numeric-based problems. These are the main components of the job, and this section will help you get started on building the required skill set. On the other hand, analysts also spend much of their time in creating presentations and documents, which deserves equal attention and practice. 2. Presentations & Documents This section covers the most common presentation materials analysts work on. It includes marketing slide decks or sales book, such as Pitchbooks, which are widely used in investment banking to win new businesses. Additionally, we will go over a few, common documents that are internally produced by banks and other rms. We often spend most our time on the technical side of things that we forget about the important skill of creating visually-appealing presentations and documents. For instance, many rst-year analysts in investment banks will spend most of their time creating PowerPoint presentations. Depending on your skill level, actually building a nancial model from scratch will not happen until later in the year or even a fter a year year..


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There are a lot of reading and writing involved in creating presentations. You’ll need to be able to articulate your ideas, gather relevant data and information, and present them in an organized fashion, such as using charts and graphs. Therefore, it’s very important early on that you become familiar with dierent presentations and documents. It takes skills and lots of time to make them look good. After covering the standard responsibilities of analysts, we then move on to discuss the importance of your personal brand – properly networking,, building relationships and being liked by other people. networking 3. Soft Skills This section focuses on the social aspects of becoming a nancial analyst. It covers networking your way to a nance job, preparing for rounds of interviews, taking care of your professional image and building working relationships within any rm. Soft skills are just as important as any hard skills mentioned earlier. Speaking in public, expressing our ideas and opinions, collaborating and being liked by the people around us will either have a huge, positive or negative impact impac t on our professional success. This all depends on where we are with our soft skill level. You’ll be meeting and interacting with many employees within the rm, as well as with its clients. Not only that, but you’ll also be working alongside them on countless deals and projects. For these reasons, you must have exceptional interpersonal skills to be a great analyst. When networking for a job, you must be able to express your genuine enthusiasm for nance. Moreover, you must be able to communicate your personal and professional story to convince employers that you’re the ideal candidate for the job you’re you ’re applying for. It takes skills to talk your way up the corporate hierarchy.


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If your career matters to you, then you must develop your soft skills. Despite your personality type, you can always “nd your voice” in the company. And, having strong soft skills will give you an added advantage and preference over someone who is less than polished in speaking and getting along with colleagues and clients. More Resources The summary above briey describes the concept of The Analyst Trifecta™ and what’s expected from this e-book. By following this comprehensive guide, we are condent that you’ll stand out from the crowd and will, in due course, reach the pinnacle of your career. Through our vast resources in corporate nance training, primarily nancial modeling and valuation, you’ll learn exactly what analysts do in their daily job. In addition, our cour ses are taught by professional trainers with years of industry experience and delivering training programs to top bulge bracket banks in the world. By the end of this e-book and after going through our courses oered on CFI’s website, you will have the condence and practical experience to succeed in your chosen career in corporate nance. Let’s get started!


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PART 01


Analytics: Financial Modeling

01

02

03


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A.

What is Financial modeling?


What is a nancial model?

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A nancial model is simply a tool that’s built in Excel to forecast a business’ nancial performance into the future. The forecast is

View courses

typically based on the company’s historical performance and requires preparing the income statement, balance sheet, cash ow statement and supporting schedules. Below is an example of nancial modeling in Excel:


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What is a nancial model used for? The output of a nancial model is used for decision-making and performing nancial analysis, whether inside or outside of the company. Inside a company, executives will use nancial models to make decisions about: •

Raising capital (debt and/or equity)

•

Making acquisitions (businesses and/or assets)

•

Growing the business (i.e. opening new stores, entering new markets, etc.)

•

Selling or divesting assets and business units

•

Budgeting and forecasting (planning for the years ahead)

•

Capital allocation (priority of which projects to invest in)

•

Valuing a business

Who builds nancial models? (Jobs and career) There are many dierent t ypes of professionals who build nancial models. The most common types of career tracks are investment banking, equity research, corporate development, FP&A, and accounting (due diligence, transaction advisory, valuations, etc.). To learn more about jobs and careers that require building nancial models, explore our interactive career map.


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How can you learn nancial modeling? The best way to learn nancial modeling modeling is to practice. It takes years of experience to become an expert at building a nancial model, and you really have to learn by doing. Reading equity research reports can be a helpful way to practice, as it gives you something to compare your results to. One of the best ways to practice is to take a mature company’s historical nancials, build a at-line model into the future, and calculate the net present value per share. This should compare closely to the current share price or the target prices of equity research reports. It’s also important to establish a solid base understanding by taking professional nancial modeling training courses such as the ones we oer at CFI in several locations across North America. In the meantime, you may also be interested right away a way in building your own nancial models. Feel free to use our available free templates to get a jump start before taking one of our courses.


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What are nancial modeling best practices? 1. Excel tips and tricks It’s very important to follow best practices in Excel when building a nancial model. For more details, you can take our free Excel course, which outlines the following key themes: •

Limit or eliminate the use of your mouse (keyboard shortcuts are much faster)

•

Use a blue font for hard-codes and inputs (formulas can stay black)

•

Keep formulas simple and break down complex ca lculations into steps

•

Ensure you know how to use the most important Excel formulas and functions

•

Use INDEX and MATCH instead of VLOOKUP to query data

•

Use the CHOOSE function to build scenarios

2. Formatting It’s important to clearly distinguish between inputs (assumptions) in a nancial model and output (calculations). This is typically achieved through formatting conventions, such as making inputs blue and formulas black. You can also use other conventions like shading cells or using borders. 3. Model layout and design It’s critical to structure a nancial model in a logical, easy-to-follow design. This typically means building the whole model on one worksheet and using grouping to create dierent sections. This way, it’s easy to expand or contract the model and move around it easily.


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The main sections to include in a nancial model (from top to bottom) are: 1.

Assumptions and drivers

2.

Income statement

3.

Balance sheet

4.

Cash ow statement

5.

Supporting schedules

6.

Valuation

7.

Sensitivity analysis

8.

Charts and graphs

Below is an example of the grouped sec tions of a well laid out nancial model:


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How do you build a nancial model? (10-st ep Guide) Financial modeling is an iterative iterati ve process. You have to chip away at dierent sections until you’re you ’re nally able to tie them all together. Below is a step-by-step breakdown of where you should start and how to eventually connect all the dots. For more detailed instructions and to work through your own Excel model, check out our nancial modeling courses. 1. Historical results and assumptions Every nancial model starts with a company’s historical results. You begin building the nancial model by pulling three years of nancial statementss and inputting them into Excel. Next, you reverse engineer statement the assumptions for the historical period by calculating items such as revenue growth rate, gross margins, variable costs, xed costs, AR days, inventory days, and AP days, to name a few. From there you can ll in the assumptions for the forecast period as hard-codes. 2. Start the income statement With the forecast assumptions in place, you can calculate the top of the income statement with revenue, COGS, gross prot, and operating expenses down to EBITDA. You will have to wait to calculate depreciation, amortization, interest, and taxes. 3. Start the balance sheet With the top of the income statement in place, you can start to ll in the balance sheet. Begin by calculating accounts receivable and inventory, which are both functions of revenue and COGS, as well as the AR days and inventory days assumptions. Next, ll in accounts payable which is a function of COGS and AP days. 4. Build the supporting schedules Before completing the income statement and the balance sheet, you have to create a schedule for capital assets like PP&E, as well as for debt and interest. The PP&E schedule will pull from the historical period and add capital expenditures and subtract depreciation. As for the debt


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schedule, it will also pull from the historical period and add increases in debt and subtract repayments. Interest will be based on the average debt balance. 5. Complete the income statement and balance sheet The information from the supporting schedules completes the income statement and balance sheet. On the income statement, link depreciation to the PP&E schedule and interest to the debt schedule. From there you can calculate earnings before tax, taxes and net income. On the balance sheet, link the t he closing PP&E balance and closing debt balance from the schedules. schedules. Shareholder’s equity can be completed by pulling forward last year’s closing balance, adding net income and capital raised and subtracting dividends or shares repurchased. 6. Build the cash ow statement With the income statement and balance sheet complete, you can build the cash ow statement with the reconciliation method. Start with net income, add back depreciation and adjust for changes in non-cash working capital, which results in cash from operations. Cash used in investing is a function of capital expenditures in the PP&E schedule, and cash from nancing is a function of the assumptions that were laid out about raising debt and equity. 7. Perform the DCF analysis When the three statement model is completed, it’s time to calculate free cash ow and perform the business valuation. The free cash ow of the business is discounted back to today at the rm’s cost of capital (its opportunit y cost, or required rate of return). We oer a full suite of courses that teach all of the above steps with examples, templates, and step-by-step step-by-s tep instruction. Read more about how to build build a DCF model. 8. Add sensitivity analysis and scenarios Once the DCF analysis and valuation sections are complete, it’s time to incorporate sensitivity analysis and scenarios into the model. The point of this analysis is to determine how much the value of the company (or some other metric) will be impacted by changes in underlying


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assumptions. This is very useful for assessing the risk of an investment or for business planning purposes (i.e. does the company need to raise money if sales volume drops by x percent?). 9. Build charts and graphs Clear communication of results is something that really separates good from great nancial analysts. The most eective way to show the results of a nancial model is through charts and graphs, which we cover in detail in our advanced Excel course as well as many of the individual nancial modeling courses. Most executives don’t have the time or patience to look at the inner workings of the model, so charts are much more eective. 10. Stress test and audit the model When the model is done, your work is not yet ov er er.. Next, Next , it’s it ’s time to start stress-testing extreme scenarios to see if the model behaves as expected. It’s also important to use the auditing tools covered in our nancial modeling fundamentals course to make sure it’s accurate and the Excel formulas are all working properly.


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Free nancial modeling video lesson Want to see all the above steps in action? Check our CFI’s free webinar video about video about how to build a three statement nancial model in Excel. This live demonstration will show steps 1 – 6 listed above. Watch video

More about nancial modeling We hope this has been a helpful guide on what nancial modelling is all about and how to perform it. If you want to learn more, we’ve got all the resources you need:

Types of nancial models DCF model guide Valuation methods Free Excel crash course


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B.

Types of Financial Models


Top 10 types of nancial models

out our online courses Here is a list of the 10 most common t ypes of nancial models: View courses

1.

Three Statement Model

2.

Discounted Cash Flow (DCF) Model

3.

Merger Model (M&A)

4.

Initial Public Oering (IPO) Model

5.

Leveraged Buyout (LBO) Model

6.

Sum of the Parts Model

7.

Consolidation Model

8.

Budget Model

9.

Forecasting Model

10. Option Pricing Model

More detail about each type of nancial model To learn more about other types ty pes of nancial analysis, you may want to check out:

Related links: Learn the basics here

Three Statement Model This is the most basic setup for nancial modeling. As the name implies, the three statements (income statement, balance sheet and cash ow) are all dynamically linked with formulas in this model.


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Related links:


Discounted Cash Flow (DCF) Model This model builds on the three statement model to value the business

Equity research

based on the net present value of the business’ future cash ca sh ow. These types of nancial models are used in equity research and other areas of capital markets.

Related links:

Merger Model (M&A) This is a more advanced model used to evaluate the accretion /

Investment banking

dilution pro forma of a merger or acquisition. Level of complexity can vary widely, and most commonly used in investment banking and/or

Corporate development

Related links:

corporate development.

Initial Public Oering (IPO) Model Bankers and corporate development professionals will also build IPO

Excel crash course

models in Excel to value their business in adva nce of going public. This includes “an IPO discount” to ensure the s tock trades well in the secondary market.

Related links: Leveraged buyout

Related links:

Leveraged Buyout (LBO) Model A leveraged buyout typically requires modeling complicated debt schedules and is an advanced form of nancial modeling.

Sum of the Parts Model This type of model is based on several DCF models mo dels added together, together, as

Marketable Securities

well as other components of the business that might not be suitable for a DCF (i.e. marketable securities, which would be valued based on the market).


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Consolidation Model Multiple business units added into one model. Typically, each business unit is its own tab with consolidation tab that simply sums up the other business units.

Related links:

Budget Model Used in nancial planning & analysis to get the budget for the coming

FP&A Analyst

year(s). Budget models are typic typically ally designed to be based on monthly gures.

Related links:

Forecasting Model Also used in FP&A to build a forecast that compares to the budget

Forecast Modeling

model. Sometimes the budget and forecast models are just one.

Option Pricing Model The two main types are binomial tree and Black-Sholes. These models are based purely on mathematical models rather than subjective criteria.


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Download our 3 statement

Examples of nancial models

nancial model:

Here are some screenshots of the various types of nancial models discussed above. If you’d like to get the templates, you can always

Financial models

download our nancial models. 3 Statement Model

Download our DCF model:

DCF Model

Financial models


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More learning To learn more about nancial modeling and valuation you may want to check out:

What is nancial modeling Financial modeling for dummies Excel shortcuts Why investment banking How to get a job in investment banking b anking How to become a nancial analyst DCF model infographic Comparing and Contrasting CFI Courses Financial Modelling Companies

To nd out more about nance careers out our interactive Career Map:

Interactive career map


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C.


Complete guide to nancial modeling In this guide, we will build on what we know so far about nancial modeling by examining all of its most important aspects and provide tips and tricks about industry-leading, best practices. CFI’s mission is to help anyone in the world become a world-class nancial analyst. With that goal in mind, we’ve designed this guide to be extremely practical with specic takeaways that can help you improve your nancial modeling skills.

Download our nancial modeling templates


View templates

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What will this guide cover? This nancial modeling guide will cover several important topics designed to sharpen your nancial analysis skills. Topics in this guide include: •

Why build a nancial model

•

Excel tips and tricks

•

Modeling best practices

•

Building the forecast

•

Linking the statements

•

Further analysis (DCF, sensitivity, M&A and more)

•

Presenting results

All of these topics are a re covered in more detail in our online nancial modeling courses.

View courses

Why build a nancial model? For anyone pursuing or advancing a career in corporate development, investment banking, nancial planning and analysis (FP&A), equity research, commercial banking, or other areas of corporate nance, building nancial models is part of the daily routine. Financial models are essential tools to help make decisions. These decisions often include: whether or not to invest in a company, asset, or security; whether or not to invest in a project (project nance); whether or not to do a merger or acquisitions, and whether or not to raise money; and other corporate nance transactions. The nancial model allows decisions makers to test scenarios, observe potential outcomes, and hopefully make an informed decision. There is a lot of talk about software programs that can be used, but the truth is the vast majority of nancial modeling takes place in Excel.


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Excel tips and tricks As mentioned earlier, Excel is the main tool used by bank s, corporations, and institutions to perform nancial modeling. The main reason for this is Excel’s remarkable versatility. Every company or investment opportunity is unique, and Excel is a blank canvas that can be totally customized and tailored to any nancial situation. The ip side of this is that there are no controls or rules in place to ensure the model is accurate or error-free. Here are some of the most important Excel tips for nancial modeling: 1.

Use as many keyboard short-cuts as possible.

2.

Keep formulas and calculations simple – break them down into smaller steps.

3.

Use the grouping function to organize sections of the nancial model.

4.

Use F5 (go to special) to quickly locate all hardcoded numbers or formulas.

5.

Use Trace Precedents and Trace Dependents to audit the model.

6.

Use XNPV and XIRR to apply specic dates to cash ows.

7.

Use INDEX MATCH over VLOOKUP for looking up information.

8.

Use a combination of date functions (EOMONTH) and IF statements to make dates dynamic.

9.

Remove grid lines when presenting or sharing the nancial model.

10. Memorize the most important Excel formulas for nancial modeling.


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For a refresher on basic Excel functions, check out our free Excel Crash Course.. When you’re ready to take your skills to the next level, our Course Advanced Excel Formulas course will help your nancial modeling skills stand out. Excel crash course


Modeling best practices Over and above good Excel skills, analysts who really stand out in nancial modeling are great at structuring and organizing their spreadsheets. Here are our top 10 best practices for structuring a model: 1.

Use color-coding to distinguish between inputs and for mulas (i.e. blue and black).

2.

Build a standalone 3 statement model on model on one worksheet (don’t separate the statements onto dierent sheets).

3.

Clearly separate the assumptions or drivers from the rest of the model (one section at the top).

4.

Use clear headers and subheads (with bold shading) to clearly distinguish sections.

5.

Use the cell comments function (shift + F2) to describe calculations or assumptions that need explaining.

6.

Build in error checks such as ensuring the balance sheet balances (without a plug).

7.

Pull forward (or repeat) information where it helps users follow the logic of the model (i.e. pull forward EBITDA EBITDA from from the income statement to the cash ow valuation section).

8.

Avoid linking to other Excel workbooks unless absolutely necessary (and if so, clearly indicate those links exist).

9.

Avoid circular references unless necessary (and use iterative calculation to solve them).

10. Use tables, charts and graphs to summarize important information.


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Download our nancial modeling templates View templates

Building the forecast The “art” of nancial modeling mostly relates to making assumptions about the future performance of the business being modeled. This is the most subjective and important part in the valuation of a company. This guide will outline various approaches to forecasting, which include: •

Top down analysis. In this approach, you start with the total addressable market (TAM) and then work down from there based on market share and segments, such as geography, products, customers, etc., until you arrive at revenues.

•

Bottom up analysis. In this method, you start with the most basic drivers of the business such as website trac, then conversion rate, then order value, and nally revenue, in the case of an e-commerce business.

•

Regression analysis. With this type of forecast, you analyze the relationship between the revenue of the business and other factors such as marketing spend and product price by performing a regression analysis in Excel.

•

Year over year growth rate. This is the most basic form of forecasting.


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Linking the statements Once the forecast assumptions are in place, it’s just a bunch of basic mathematical operations to ll in the three nancial statements in the model. From a nancial modeling perspective, this is the least subjective part of the process. With the assumptions clearly stated, an analyst more/less multiplies, divides, add or subtracts to produce the statements. Step #1 Begin by calculating revenue, based on the forecasting approach used from the above section. From there, ll in cost of goods sold, gross prot, operating expenses, and arrive at earnings before interest taxes depreciation and amortization (EBITDA). Step #2 Create supporting schedules for (i) capital assets (PP&E, depreciation, and capital expenditures), (ii) working capital balances (accounts receivable, accounts payable and inventory), and (iii) nancing schedules to equity capital, debt balances and interest expense. Step #3 Finish the income statement (depreciation, interest, taxes, net income) and ll in the balance sheet items except for c ash, which will be the last las t part of the nancial model to be completed. Step #4 Build the cash ow statement, consisting of cash from operating activities, cash used in investing activities, and cash from nancing activities. Combining these three sections will determine the closing cash balance, which links to the balance sheet to complete the nancial model. This is a simplied overview of the nancial modeling process, or linking of the three statements, statements , so please watch our video-based courses on nancial modeling if you’d like more detailed instructions.


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Download our nancial modeling templates View templates

Further analysis With the baseline nancial model in place, it’s time to layer on whatever type of nancial modeling exercise suits the situation. We’ve published an overview of the various types of nancial models, but to recap, the most common ones include: •

DCF analysis – Discounted cash ow analysis (DCF model) to value a business.

•

M&A analysis – Evaluate the attractiveness of a potential merger, acquisition or divestiture.

•

Capital raising – Analyze the proforma impact of raising debt or equity, or other capital events.

•

LBO analysis – Determining how much leverage (debt) can be used to purchase the company.

•

Sensitivity analysis – Layering on a section that evaluates how sensitive the business or the investment is to changes in assumptions or drivers (sensitivity analysis course).


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Download all of our nancial modeling templates View templates

Presenting the results When all of the above analysis anal ysis is done, the work still not over. The last step is to develop charts, graphs, and other outputs that can be used to easily communicate the information from the model. This is where the best analysts really get to shine. It’s one thing to build a complex model that only you understand, but it’s another thing to eectively communicate the risks, rewards, and critical factors to all audiences. As the capstone for your nancial modeling training, we recommend either an advanced Excel course to course to learn how to build all the best charts and graphs for a presentation, dashboard, or any other document you’re producing.


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More nancial modeling guides We hope this has been a helpful guide to nancial modeling in Excel, and has helped you advance your career as a nancial analyst. At CFI, we pride ourselves in creating the best free guides to help you get an edge. Please check out these other resources to continue developing your skills:

DCF modeling guide

3 statement model guide

How to link the nancial statements

All nancial modeling resources


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D.


Financial Modeling Skills

Overview of nancial modeling skills This guide will focus on the most important nancial modeling skills required to be a world-class nancial analyst. These are: 1.

A solid understanding of accounting

2.

Strong Excel skills

3.

Knowing how to link the 3 nancial statements

4.

Understanding how to build a forecast

5.

A logical framework for problem solving

6.

Attention to detail

7.

Ability to distill large amounts of data into a simple format

8.

An eye for design and esthetics

Each of these nancial modelling skills will be broken down in further detail below. As the image below shows, these skills can be divided into 3 categories: accounting/nance, Excel, and problem solving/logic/design.


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Accounting skills In order to build a nancial model, it’s important to have a solid understanding of accounting fundamentals. fundamentals . These include include concepts such as matching principle, accruals, revenue recognition, non-cash items like depreciation, amortization, amor tization, and more. You need to have enough accounting skills to know how to read nancial statements, statements, how to dissect them, and how to build them back up again. Excel skills Strong Excel skills are critical for nancial modelling, and it can be more of an art ar t than a science. You’ll need to know all t he main keyboard shortcuts to shortcuts to help save time and build models as quickly as possible. You’ll also need to know all the main formulas and functions to functions to perform calculations and nancial analysis. Check out our free Excel course to course to make sure you have the basics basic s down! Linking the 3 nancial statements As mentioned numerous times, another very important skill is being able to link the 3 nancial statements. This means taking historical nancial statements (income statement, balance sheet, and cash ow statement) and dynamically linking them together in Excel. For example, connecting net income on the income statement to retained earnings on the balance sheet. This can be one of the trickiest skills. Free step-by-step guide: how to link the 3 nancial statements in statements in Excel. Problem solving skills A good nancial analyst has the ability to think logically and in a very organized manner. manner. When building a nancial model, it ’s important to follow a logical ow of information, so that other users can easily understand what you’ve done when it’s their turn to work on your Excel le.


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Attention to detail This is an absolutely essential skill for nancial modeling. Given the vast amount of information and intricate nature of a complex model, if you don’t have attention to detail, you’ll unfortunately have a dicult time becoming a capable nancial modeler. Check out our nancial modeling courses to courses to see the level of detail required. Simplication of complex information One of the hallmarks of a someone with great nancial modelling skills is their ability to distill large amounts of complex information into a simple format. As Leonardo da da Vinci said, “Simplicit “Simplicity y is the ultimate sophistication.” Check out Advanced Excel Skills Course to Course to help you simplify complex information. Design skills One of the least discussed, yet most important nancial modeling skills, is having an eye for design and esthetics. est hetics. A good model is easy to follow, and easy on the eyes – it should have clean formatting, beautiful charts and graphs, and look professional. This is one of t he 3 pillars of our Analyst Trifecta method, which we outline in our guide on how to be a great nancial analyst.


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Financial model example Another way to get acquainted with the dierent types of nancial models is to purchase all our nancial modeling templates and templates and work through them yourself. More nancial modeling resources We hope you now have thorough understanding of the various nancial modeling skills required to be a world- class nancial analyst. analyst . You may want to check out some of our other popular resources, including:

Financial modeling best practices

DCF model training

3 statement model

Interactive Career Map

Excel courses


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PART 01


Analytics: Valuation

01

02

03


37


A.


Valuation Methods Methods

What are the main valuation methods? When valuing a company as a going concern, there are three main valuation methods used: DCF analysis, analysis, comparable companies, and precedent transactions. These are the most common methods used in investment banking, banking , equity research, private equity, corporate development, MBOs MBOs and and most areas of nance.


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Method 1: DCF Analysis In the Discounted Cash Flow (DCF) approach, you forecast the business’ unlevered free cash ow into ow into the future and discount it back to today at the rm’s WACC. A DCF analysis is per formed by building a nancial model in Excel and requires an extensive amount of detail and analysis. It is the most detailed of the three approaches, requires the most assumptions and often produces the highest value. However, the eort required for preparing a DCF model will also often result in the most accurate valuation. A DCF model allows the analyst to forecast value based on dierent scenarios and to even perform a sensitivity analysis. For larger businesses, the DCF value is commonly a sum-of-the-parts analysis, where dierent business units are modeled individually and added together. To To learn more, see our DCF model infographic.

Method 2: Comparable Analysis (“Comps”) Comparable company analysis (also called “trading multiples” or “peer group analysis” or “equity comps” or “public market multiples”) is a relative valuation method in which you compare the current value of a business to other similar businesses by looking at trading multiples like P/E, EV/EBITDA, or other ratios. Multiples of EBITDA are the most common valuation method. The “comps” valuation method provides an observable value for the business, based on what companies are currently worth. Method 3: Precedent Transactions Precedent transactions analysis is a form of valuation where you compare the company with other businesses that have recently been sold or been acquired in that industr y. These values include the takeover premium for which they were acquired.


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These values represent the en bloc value of a business. They are useful for M&A transactions, but can easily become stale-dated and no longer reective of the current market. Football eld chart (summary) Bankers will often put together a football eld chart to summarize the range of values for a business based on the dierent v aluation methods used. Below is an example of a football eld graph, which is typically included in an investment banking pitch book.

More valuation methods Another valuation method for a company that is a going concern is called “ability to pay analysis.” This approach looks at the maximum price an acquirer can pay for a business while still hitting some target. For example, if a private equity rm needs to hit a hurdle rate of 30%, what is the maximum price it can pay for the business?


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If the company will not continue to opera te, then a liquidation value will be estimated based on breaking up and selling the company’s assets, Finally, non-operating assets may be valued at either book value or market value. Additional valuation resources To learn more about how to value a business, or to prepare f or a career in corporate nance, we’ve got all the resources you need! Here are some of our most popular resources relate to valuation methods:

Valuation infographic – How to value a business

Terminal value

Weighted Average Cost of Capital

How to get a job in investment banking b anking

Excel formulas for nance


41


B.


DCF Analysis

Performing a DCF analysis This infographic will walk you through the step-by-step process of how to build a discounted cash ow (DCF) (DCF ) model to value a business. A discounted cash ow model takes into account all factors that could aect a company’s current and future performance. This performance equates to certain inows and outows of cash, which are then discounted back to the present value. The sum of t he present value of all future cash ows equals the net present value.


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There are two categories of inuence on the value of business: •

Internal

•

External

The internal side consists of most of the data that a nancial analyst has to consider when generating models. This includes the historic al performance of the company, its current operations and its future potential. The internal side also often has the most concrete or solid data, since most of the raw information used in the models is quantitative. A nancial analyst, for example, will use a historical income statement to forecast future net income. This forecast will eventually ow down through other nancial statements and supporting schedules to generate an estimate of future free cash ow. This cash ow is what is used in the discounted cash ow analysis. It is important, however, to remember that the external side should be considered, too. While the internal side of the DCF analysis is important and key to the quantitative side of the analysis, external factors must not be neglected when considering the f uture potential of a company. External forces, such as market cycle and growth of competitors, will indenitely have an impact towards the performance of any company. While these are harder to forecast, educated and informed estimates must be made towards these factors, if one wishes to make a more accurate DCF model. Read about the dierent types of nancial models. models. Infographic The infographic was designed to help you v isualize the process of how to actually think about a DCF analysis in your head before building a DCF model. Please read through the various steps described in the image above to master the process step by step.


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Career paths There are many nance jobs that require building DCF modeling for a living. To learn more about those various careers, explore our interactive career map to nd out which path is right for you. Additional Resources Valuation infographic

Valuation methods

What is nancial modeling?

Financial modeling for dummies


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C.


Business Va Valuation luation

Valuation Infographic


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Business Valuation Framework Over the years, we’ve spent a lot of time thinking about and working on business valuations across a broad range of transactions. Given that majority of us are visual learners, we thought it would be helpful to illustrate our thoughts in a diagram. Top Down vs. Bottom Up As we look at the diagram, it logically ows from top to bottom, however, when building a nancial model to value a business, we usually think about it bottom up, and in an iterative way. We start in the bottom left corner of the diagram with historical nancials, working our way up to the top, then back down again a gain to build the forecast nancials (and repeat the process again). a gain). 1. Historical Financials The rst place to start when valuing a business is usually with historical nancial statements. The past matters a lot when performing a valuation as it give a view of the future and what’s realistically possible. The future, of course, is heavily inuenced by what the company’s assets, management team, competition and markets will do going forward. 2. Assets Examining the asset base in conjunction with the historical income statement will paint a picture of the business’ ability to generate a return on assets (“ROA” net income divided by total assets), and most importantly, generate free cash ow (operating cash ow less capital expenditures). When evaluating a business’ assets, it’s important to look at both tangible (property, plant, equipment, etc.) and intangible assets (brands, customer lists, intellectual property, etc.). 3. Management Track Record Assessing management can be quite challenging, especially if you don’t have the opportunity to meet them in person (which is the case for most retail investors). An easy way to evaluate their performance is to look back at historical guidance (if a public company) and measure


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it against results achieved. Do you see a consistent trend of missing, meeting, or beating guidance? guidance? Measuring the track record combined with in-person meetings to assess integrity, honesty, work ethic, etc. will be the best way to decide whether you assign a “management premium” or “management discount” to the business. 4. Competition What is the current state of competition in this industry? Are barriers to entry high or low, and how much pricing power does the company have? Answers to these types of questions (and others listed in the diagram above) will help shape your view of risk and the company’s ability to protect prots (which will be reected in the forecast nancials). 5. “Moat” Warren Buett and Charlie Munger are notorious for buying businesses that have wide moats around them, or more literally, have durable competitive advantages. Examples of companies with big moats around them include Google (Alphabet), railroad companies (infrastructure), Coca Cola (it’s brand), and businesses with network eects like Facebook and Amazon. The wider the moat, the longer the company will be able to earn above average prots, and the lower the risk of the investment. The inverse is true for companies with little to no moat. 6. Culture & Strategy I group these two together because they are two of the main objectives of the CEO. Culture is critical as it drives the “Why” of an organization (see Simon Sinek) and motivates people to create a business that can change the world (even if in some small way). Culture is also cr itical in driving company behavior such as honesty and integrity, which lowers the risk of the business. Next in importance is strategy (i.e. “strategy eats culture for breakfast”?) as this will be critical in maintaining any durable competitive advantage that a company has, or is attempting to gain/increase. 7. Future Assets Based on the strategy of the business, what will the assets look like in the future? Will the company have to signicantly invest to grow the


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asset base, and if so, what types of ROA will they earn? It’s important to think carefully about how much capital is required to sustain and grow the assets (based on the strategy) and how those assets will create value in the form of free cash ow generation. The details/inputs behind these assets will generate the “principles” or drivers of the nancial model. 8. Forecast Financials With a deep understanding of the industry, management (culture & strategy), and the business’ assets, it’s now possible to forecast future nancial statements. A good nancial model will dis-aggregate the various drivers of revenues, expenses, etc. and present them as inputs that can easily be changed. Depending on the industry or maturity of the business, you may forecast out anywhere from 5 years to the end of an asset’s life. 9. Discount Rate Once the nancial forecast is in place, setting up the discounted cash ow (“DCF”) model is just simple mechanics in Excel. The most challenging and subjective part of the DCF model is determining what discount rate to use. There are specic formulas you can use based on interest rates and relative volatility, but the essence of the discount rate is captured in most of the qualitative issues discussed above: stability of assets, durability of a moat, competence of management, risk of changes in competitive dynamics, and risk of changes in markets (i.e. government regulation). Taking Taking all of these into account will determine what discount rate you think is appropriate to account for the riskiness of the investment. To the extent, you have risk-adjusted the cash ows directly in the t he model (for the risks discussed above). You You don’t need to include those risks in the discount rate (i.e. a perfectly risk adjusted cash ow forecast would be discounted at only the appropriate risk-free government treasury rate).


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10. Price The net present value (“NPV”) of future cash ows gives you the value of the business, but how much are you willing to pay f or it? Value investors will typically want to build in a margin of safety (say 20-30%) by paying less than the intrinsic value. Other investors pay full value if they are willing to accept the discount rate as their internal rate of return (“IRR”). Investors typically look at comparable companies or past transactions (acquisitions) to see what other people are willing to pay for similar business (this adds an element of game theory or “greater fool theory” and moves away from intrinsic intr insic value). Conclusion This is how we think about valuation w hen building a nancial model, and we hope you found it insightful. As visual learners, we nd it useful to organize mental models, like valuation, on paper. The key takeaway for us is that valuation is an iterative process — we really have to cycle through things like markets, competition, management, and assets multiple times with sensitivity and scenario analysis before we can build a reliable nancial forecast forecas t and discount it back to today. Additional Resources

Valuation books

What is nancial modeling?

Financial modeling for dummies


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PART 01


Analytics Excel

01

02

03


50


A.


List of Exc Excel el shortcuts

To be more productive, faster, and more ecient when building nancial models or performing nancial analysis, it’s important to know the main keyboard shortcuts in Excel. These are critical for careers in investment banking, equity research, FP&A, nance, accounting, and more. The rst thing you’ll do if you’re hired as an investment banking analyst is take a series of intense Excel E xcel training courses. Your mouse will be taken away, and you’ll be expected to learn nancial modeling with only keyboard shortcuts. If you follow our tips and tricks below, you’ll be able to master theses shortcuts on Windows or Mac operating systems. It may seem slower at rst if you’re use to the mouse, but it’s worth the investment to take the time and learn these important shortcuts. We have provided the top, time-saving shortcuts for both PCs and Macs below. To To master these skills, check out our Free E xcel Crash Course. You may also want to check out our section on other Excel formulas or the Excel formulas cheat sheet. Excel is quite robust, meaning there is a lot of dierent tools that can be utilized within it, and therefore many skills one can practice and hone.


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Keyboard shortcuts Editing shortcuts F2 Edit acti active ve cell F3 Paste name into a formula F4 Toggle references ALT + ENTER Start a new line within the same cell SHIFT + F2 Insert or edit cell cell comment SHIFT + F10 Display shortcut menu (i.e. same as right click) SHIFT + F1 F11 1 Insert worksheet CTRL + F3 Dene a name for a cell CTRL + D Fill down (e.g. copy formula down in selected cells) CTRL + R Fill right CTRL + SHIFT + A Insert argument names and parentheses for a function after typing a function name in a formula SHIFT + SPACEBAR Select entire row ALT + I + R Insert row ALT + I + C Insert column Formatting Shortcuts CTRL + 1 Brings up format cells menu CTRL + B Bold CTRL + I Italic CTRL + C Copy CTRL + V Paste ALT + S + E Paste special CTRL + X Cut CTRL + Z Undo CTRL + Y Repeat last action CTRL + A Select all used cells (select (select entire worksheet if command is repeated)


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Navigation shortcuts F5 Goto SHIFT + ARROW Select the adjacent cell SHIFT + SPACEBAR Select entire row CTRL + SPACEBAR SPACEBAR Select entire column CTRL + SHIFT + HOME Select all to the start of the sheet CTRL + SHIFT + END Select all to the last used cell of the sheet CTRL + SHIFT + ARROW Select to the end of the last used cell in row/ column CTRL + ARROW Select the last used cell in row/column CTRL + PAGE UP/DOWN UP/DOWN Move to the next or previous worksheet (Move between tabs if you are in a menu window) CTRL + TAB Move to next workbook (while in spreadsheet) Move to next divider (when in menu options) TAB Move to the next cell (Move between items within a menu window) Other shortcuts CTRL + ; Enter date CTRL + : Enter time CTRL + ` Show formula/show values (key (key to the left of 1) CTRL + ] Select cells which refer to the active cell (useful before deleting a cell in a worksheet) ALT Drives menu bar ALT + TAB TAB Next open program ALT + = Autosum


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Mac shortcuts Editing shortcuts CTRL + U Edit active cell Command + T

Toggle references

CTRL + OPTION + ENTER Start a new line within the same cell SHIFT + F2 Insert or edit cell cell comment SHIFT + F10 F10 Display short cut menu SHIFT + F1 F11 1 Insert worksheet CTRL + F3 Dene a name CTRL + D Fill down (e.g. copy formula down in selected cells) CTRL + R Fill right CTRL + SHIFT + A Insert argument names and parentheses for a function after typing a function name in a formula Formatting Shortcuts CMD + 1

Brings up format cells menu

Command + B Bold Command + I Italic Command + C Copy Command + V Paste Command + SHIFT + V Paste special Command + X Cut Command + Z Undo Command + Y Repeat last action Command + A Select all used cells (select (select entire worksheet if command is repeated) Navigation shortcuts FF5 / CTRL + G Goto SHIFT + ARROW Select the adjacent cell SHIFT + SPACEBAR Select entire row CTRL + SPACEBAR SPACEBAR Select entire column CTRL + SHIFT + HOME Select all to the start of the sheet CTRL + SHIFT + END Select all to the last used cell of the sheet


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CTRL + SHIFT + ARROW Select to the end of the last used cell in row/ column CTRL + ARROW Select the last used cell in row/column CTRL + PAGE UP/DOWN UP/DOWN Move to the next or previous worksheet (Move between tabs if you are in a menu window) CTRL + TAB Move to next workbook or window TAB Move to the next cell (Move between items within a menu window) Other shortcuts CTRL + ; Enter date CTRL + : Enter time CTRL + ` Show formula / show values (key to the left of 1) CTRL + ] Select cells which refer to the active cell (useful before deleting a cell in a worksheet) ⌘ + TAB Next open program ⌘ + SHIFT + T Insert autosum formula


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B.


Excel formulas cheat sheet

If you want to become a master mas ter of Excel, nancial analysis anal ysis and building nancial models, then you’ve come to the right place. We’ve built a cheat sheet of the most important Excel formulas and functions required to become a spreadsheet power user. Below is a written overview of the main formulas for your own selfstudy. However, if you want a video explanation of t he formulas, check out our Free Excel E xcel Crash Course. If you’re already a power user, check out our Advanced Excel Course and learn the most powerful combinations of formulas and functions. Dates and time =EDATE – add a specied number of months to a date in E xcel =EOMONTH – conver t a date to the last las t day of month (i.e. 7/18/2018 7/18/2018 to 7/31/2018) =TODAY =TODA Y – insert and display today’s today ’s date in a cell =YEAR – extrac extractt and display the year from a date (i.e. 7/18/2018 7/18/2018 to 2018) 2018) in Excel =YEARFRAC – expresses the fraction of a year between two dates (i.e. 1/1/2018 – 3/31/2018 = 0.25) Convert time to seconds – onvert an amount of time to seconds (i.e. 5 minutes to 300 seconds) Navigation Go To Special – press F5 and nd all cells that are hard -codes, formulas for mulas and more. Great for auditing. Find and Replace – press Ctrl + F and you can changes parts of many formulas at once


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Lookup formulas INDEX MATCH – a combination of lookup functions that are more powerful than VLOOKUP =VLOOKUP – a lookup function that searches vertically in a table =HLOOKUP – a lookup function that searches horizontally in a table =INDEX – a lookup function that searches vertically and horizontally in a table =MATCH – returns the position of a value in a series =OFFSET – moves the reference of a cell by the number of rows and/or columns specied Math functions =SUM – add the total of a series of numbers =AVERAGE – calculates the average of a series of numbers =MEDIAN – returns the median number of a series =SUMPRODUCT – calculates the weighted average, very useful for nancial analysis =ROUNDDOWN – rounds a number to the specied number of digits =ROUNDUP – the formula rounds a number to the specic number of digits AutoSum – a shortcut to quickly sum a series of numbers Financial formulas =NPV – calculates the net present value (NPV) of cash ows based on a discount rate =XNPV – calculate the NPV of cash ows based on a discount rate and specic dates =IRR – this formula calculates the internal rate of return (discount rate that sets the NPV to zero) =XIRR – calculates the internal rate of return (discount rate that sets the NPV to zero) with dates =YIELD – returns the yield of a security based on maturity, face value, and interest rate =INTRATE – the interest rate on a fully invested security =IPMT – this formula returns the interest payments on a debt security =PMT – this function returns the total payment (debt and interest) on a debt security


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=DB – calculates depreciation based on the xed-declining balance method =DDB – calculates depreciation based on the double-declining balance method =SLN – calculates depreciation based on the straight-line method Conditional functions =IF – checks if a condition is met and returns a value if yes and if no =OR – checks if any conditions are met and returns only “TRUE” or “FALSE” =AND – checks if all conditions are met and returns only “TRUE” or “FALSE” IF AND – combine IF with AND to have multiple conditions =IFERROR – if a cell contains an error you can tell Excel to display an alternative result Other functions and formulas Sheet Name Code – a formula using MID, CELL and FIND f unctions to display the worksheet name Consolidate – how to consolidate information between multiple Excel workbooks


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C.



10 Advanced Excel Formulas You Must Know Every nancial analyst spends more time in Excel than they may care to admit. Based on years and years of experience, we have compiled the most important and advanced Excel formulas that every world-class nancial analyst must know. Several formulas mentioned previously are broken down here. 1. INDEX MATCH Formula: =INDEX(C3:E9,MATCH(B1 =INDEX(C3:E9,MATCH(B13,C3:C9,0),MATCH(B1 3,C3:C9,0),MATCH(B14,C3:E3,0)) 4,C3:E3,0)) This is an advanced alternative to the VLOOKUP or HLOOKUP formulas (which several drawbacks and limitations). Index Match is a powerful combination of formulas that will take your nancial analysis and nancial modeling to the next level. INDEX returns the value of a cell in a table based on the column and row number.. MATCH returns the position number posit ion of a cell in a row or column. Here is an example of the INDE X and MATCH formulas combined together. In this example, we look up and return a person’s height based on their name. Since name and height are both var iables in the formula, we can change both of them!


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For a step-by-step explanation or how to use this formula, please see our free guide on how on how to use INDEX MATCH MATCH in Excel. Excel. 2. IF combined with AND / OR Formula: =IF(AND(C2>=C4,C2<=C5),C6,C7) Anyone who’s spent a great deal of time in various types of nancial models knows models knows that nested IF formulas can be a nightmare. Combining IF with the AND or the OR function can be a great way to keep or formulas easier to audit and for other users to understand. In the example below, you will see how we used the individual functions in combination to create a more advanced formula. For a detailed breakdown of how to perform this function in Excel, please see our free guide on how to use IF with AND / OR. OR .

3. OFFSET combined with SUM or AVERAGE Formula: =SUM(D7:OFFSET(D6,D4,0)) The OFFSET function on its own in not particularly advanced, but when we combine it with other functions like SUM or AVERAGE, we can create a pretty sophisticated formula. Suppose you want to create a dynamic function that can sum a variable number of cells. With the regular SUM


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formula, you are limited to a static calculation, but by adding OFFSET, you can have the cell reference move around. To make make this formula work, work , we substitute ending reference cell of the SUM function with the OFFSET function. This makes the formula dynamic and cell referenced, as D4 is where you can tell Excel how many consecutive cells you want to add up. Now we ’ve got some advanced Excel formulas! Learn how to build this formula step-by-step in our advanced E xcel course. 4. CHOOSE Formula: =CHOOSE(choice, option1 option1,, option2, option3) The CHOOSE function is great for scenario analysis in nancial modeling. It allows you to pick between a specic number of options, and return the “choice” that you’ve selected. For example, imagine you have three dierent assumptions for revenue growth next year: 5%, 12% 12 % and 18%. Using the CHOOSE formula, for mula, you return 12% if we tell Excel you want choice #2.

To see a video demonstration, check out our Advanced Excel Formulas Course.


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5. XNPV and XIRR Formula: =XNPV(discount rate, cash ows, dates) If you’re an analyst working in investment banking, banking , equity research, or nancial planning & analysis (FP&A ( FP&A), ), or any other area of corporate nance that requires discounting cash ows, t hen these formulas are a lifesaver! Simply put, XNPV and XIRR allow you to apply specic dates to each individual cash ow that’s being discounted. The problem with Excel’s basic NPV and IRR formulas is that it assumes the time periods between cash ow are equal. Routinely, as an analyst, you’ll have situations when cash ows are not timed evenly, and this formula is how you x that . For a more detailed breakdown, see our free IRR vs XIRR formulas guide. 6. SUMIF and COUNTIF Formula: =COUNTIF(D5:D1 =COUNTIF(D5:D12,”>=21 2,”>=21″) ″) These two advanced formulas are great uses of conditional functions. SUMIF adds all cells that meet a certain criteria, and COUNTIF counts all cells that meet a certain criteria. For example, imagine you want to count all cells that are greater than or equal to 21 (the legal drinking age in the U.S.) to nd out how many bot tles of champagne you need for a client event. You can use COUNTIF as an ad vanced solution, as shows in the screenshot below.

In our advanced Excel course, course, we break these formulas down in even more detail.


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7. PMT and IPMT Formula: =PMT(interest rate, # of periods, present value) If you work in real estate, commercial banking, banking, or any nancial analyst position that deals with debt schedules, you’ll want to understand these two detailed formulas. The PMT formula gives you the value of equal payments over the life of a loan. You can use it in conjunction conjunct ion with IPMT (which tells you the interest payments for the same type of loan) then separate principal and interest payments. 8. LEN and TRIM Formulas: =LEN(text) and =TRIM(text) These are a little less common, but certainly very sophisticated formulas. These applications are great for nancial analysts that need to organize and manipulate large amounts of data. data. Unfortunately, the data we get is not always perfectly organized, and sometimes there can be issues like extra spaces at the beginning or end of cells In the example below, you can see how the t he TRIM formula cleans up the Excel data.


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9. CONCATENATE Formula: =A1&” more text” Concatenate is not really a function on its own. It’s really just an innovative way of joining information from dierent cells, and making worksheets more dynamic. This is a very powerful tool for nancial analysis performing nancial modeling (see our free nancial modeling guide to guide to learn more). In the example below, you can see how the t he text “New “ New York” plus “, “ is joined with “NY ” to create “New York, NY”.

10. CELL, LEFT, MID and RIGHT functions These advanced Excel functions can be combined to create some very advanced and complex formulas to use. The CELL function can return a variety of information about the contents of a cell (its name, location, row, column, and more). The LEFT function can return text from the beginning of a cell (left to right), MID returns text from any start point of the cell (left to right), and RIGHT returns text from the end of the cell (right to left).


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Below is an illustration of these three formulas in action. To see how these can be combined in a powerful way with the CELL function, we break it down for you in our Advanced Excel Formulas Course. Course.

More Excel formulas training We hope these top 10 advanced Excel formulas have been helpful for you, and should go a long way to improving your nancial analy sis and nancial modeling skills. skills. Below are more resources to help you become an Excel power user: Excel formulas cheat sheet

Excel keyboard shortcuts

Free Excel crash course

Advanced Excel course

Excel for nancial modeling


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PART 02


Presentation Introduction

01

02

03


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A.


Investment Banking Pitchbook What is an investment banking pitchbook? An investment banking pitchbook banking pitchbook is a PowerPoint presentation designed to win new business. The “pitch” is typically an explanation of why the bank in question is best suited to lead the transaction, and why they should be engaged by the client. There are various types of pitches, and, depending on the relationship with the client and the type of traction, they can vary widely. What’s included in an investment banking pitchbook? Here is an example outline for an investment banking pitchbook: 1.

Title page – Logos, date, and a title

2.

Table of Contents – All sections in the pitch book

3.

Executive Summary / Situation Overview – Explain why you’re giving the pitch and the call to action or recommendation in one page

4.

Team & Bank Introduction – Introduce the people at the meeting (short biographies) and discuss the bank’s track record in the client’s space

5.

Market Overview – Charts and graphs as graphs as well as commentary describing the current market environment and trends in the client’s sector

6.

Valuation – Valuation methods such methods such as comparable company analysis, precedent transactions and DCF analysis (if enough information has been provided to perform one) will all be displayed in a football eld graph

7.

Transaction Strategy – Details around the bank’s strategy for the transaction they’re pitching to the client to lead – whether an IPO, acquisition, or sale of the business

8.


Summary – Recap why the team and the bank are best suited to

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lead the transaction, how the market environment is relevant, the valuation you think is achievable, and the band’s strategy if leading the transaction 9.

Appendix – May contain cont ain a wide range of information depending on the pitch, but mostly backup information the bank feels there may be questions on, but doesn’t doesn’ t belong in the main pitchbook (like nancial modeling assumptions modeling assumptions / details)

How is the pitch book actually made? The pitchbook is a collaboration between junior and senior bankers, with most of the actual work being done by investment banking analysts and associates associates.. Typically, a managing director (who has a relat ionship with the client) will sit down with a director or VP to create an outline of the pitch book. Then the VP or director will wireframe the structure of the pitch and have the associate work with the analyst to crunch all the numbers and create all the analysis used to populate the presentation. The process can take anywhere from a couple of days to a few weeks, depending on the client’s timeline, and how busy the team is. The process usually requires a high number of iterations with many drafts or version of the pitch, often done until late at night and over the weekend.


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How is the pitch delivered? In most cases, the pitch book is delivered in person to the bank’s or corporate client’s client’s oce oce by senior members of the investment invest ment banking team. The managing director with a relationship with the client will typically lead the meeting, and other bankers may have smaller roles as well. If junior members of the team like the analysts or associates attend, they usually don’t say anything and just take notes or are prepared to dig up any additional information that’s required.

More investment banking resources Whether you’re looking to get hired, or move up the ladder, we got all the resources you need for a successful career in investment banking or other corporate nance roles. Helpful resources include: Career resources Investment banking analyst interview Investment banking salary DCF model training Investment banking training Excel courses


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B.


ECM Memo

What is an ECM deals committee committe e memo? An Equity Capital Markets (ECM) Memo is generated internally at an investment bank to bank to approve a potential transaction (IPO, follow-on oering, etc.). The ECM Memo is prepared by the investment banking team and sent to the ECM team.

ECM Memo Example Date: [insert Date: [insert date of memo] To:: [insert names of members of ECM Deals Committee] To From: [insert From: [insert names of members of Investment Banking Team] Team] Cc: [insert Cc: [insert appropriate names] Re: ECM Re: ECM Deals Committee Meeting – [insert name of issuer/details of oering] Meeting [insert date, time and location of meeting and conference call details] Details: Situational Overview: •

Why are we meeting?

•

What proposed resolutions do we want achieve?

Proposed Issue:


•

Is this a Prospectus Oering or a Private Placement?

•

Is this an IPO or a follow-on oering?

•

Is it a treasury oering or a secondary oering?

•

Size of issue and type of security (Long Form/Short Form eligible)

•

Geographic distribution objectives

•

Retail and Institutional distribution objectives

•

Syndicate structuring objectives

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Use of Proceeds: •

Rationale for the issue and how proceeds will be used.

Relationship: •

Issuer’s history with our bank/other our bank/other dealers

Business of the Company: •

Brief description of issuer’s business

Recent Developments: •

Brief summary of any recent material developments aecting the issuer and its industry

Major Owners: •

[owner] holds[•]%

•

Institutional holdings list from Bloomberg

Pro Forma Dilution: •

[number of shares in issue divided by the total outstanding after issue]

Trading: •

Listed on [ exchanges]

•

LTM volume of [number] of shares

•

Liquidity measure [LTM trading volume divided by number of shares in issue]

•

Recent blocks: [major blocks in recent months]

•

[date] [number] @ [price] [dealer]

Relationships with our bank: •

Trading summary for 3 months and 1 year

•

Is our bank a lender to the t he issuer? Is the credit agreement in good standing?

•

Is our bank a shareholder of the issue? What was the price and a nd timing of the last investment?


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Research Coverage Research Comments: •

Firms providing Research coverage

•

Our bank’s research recommendation and target price

•

Our bank’s earnings estimates

•

Other analysts’ recommendations and target prices

•

IBES earnings estimates

Historical Financial Information: •

Five year nancial highlights (if highlights (if not included in other attached documents)

Leverage: •

Amount of long term debt

Dividends: •

Dividend amount

•

Frequency of payments (annual/semi-annual/quarterly)

•

Next ex-dividend date

•

Any recent changes in dividends or expected changes

Valuation: •

Primary and secondary valuation criteria

•

Pricing relative to comparables

•

Issuer’s market cap and enterprise value

Share Price: •

Recent share price: [price] [52-week high] [52-week low]

•

One year daily and ve year weekly share price graph from Bloomberg


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Most Recent Issue: •

Date:

•

Type of security:

•

Price:

•

Number of securities issued:

•

Size :

•

Commission:

•

Underwriters:

•

Discussion of actual market receptivity/success of oering

Risks and Risk Factors: •

Industry

•

Operational

•

Financial

•

Environmental/Litigation

•

Technology

•

Market Receptivity/depth

•

Valuation benchmarks/comparables

Knowing how to build an ECM Memo is an important investment important investment banking skill-set.


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C.


Greensheet

What is a greensheet? A Greensheet (or Green Sheet) is a summary of the key attributes of the issuer of issuer of an oered security used by the sales force when they solicit expressions of interest from prospective institutional investors and brokers. It is an internal marketing document and cannot be shared outside of the bank. Greensheets are often produced by investment bankers when bankers when working on a transaction for corporate issuers. issuers. What’s included in a greensheet? It is customary for a lead manager to prepare a greensheet in connection with a public oering. Greensheets are provided to the bank’s internal sales force once a preliminary prospectus has been led and are used by the sales force when they solicit expressions of interest from prospective institutional investors and brokers. Green sheets include a summary of the key attributes of the issuer and the oered securities. They are intended for internal use only and, because they constitute communication during the period of distribution, should not be provided or made available to prospective investors. All material information contained in the green sheet (excluding the list of “comparables” and any summary of current research ratings concerning the issuer) must be derived from the contents of the preliminary prospectus and other publicly available sources.


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When preparing a green sheet, the following guidelines will help ensure a high quality document is produced: •

The green sheet must make a balanced presentation of the prospectus contents and the information contained in the green sheet must generally track the prospectus;

•

Green sheets may summarize the information in the preliminary prospectus but care c are should be taken not to use a dierent language that would change the meaning from the language used in the prospectus;

•

In addition to the bold statement on the green sheet stating that it is for internal use only or broker use onl y, all green sheets must have the legend “For Internal Use Only” diagonally shadow written across each page; and

•

All green sheets must contain appropriate legends, as approved by Legal. In cases where the bank is acting as lead or co-lead manager, investment bankers should ask the underwriters’ counsel.

Knowing how to build a greensheet is an important investment banking skill-set.

Where to learn more Investment banking careers Explore our career map Interviews: IB interview guide Courses: CFI investment banking courses


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D.


Term Sheet

A term sheet outlines the basic terms and conditions of an investment opportunity. A term sheet is a non-binding agreement and serves as a star starting ting point point to draft more detailed agreements, such as a commitment letter, denitive agreement, or subscription agreement. Term sheets are often produced by investment bankers on behalf of corporate issuers.

Term Sheet template – example Note: This term sheet is only for educational purposes and should not be used for any other purpose...


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Issuer:

[Name] (the “Corporation”)

Nature of the Oering:

[Brokered or non-brokered] [private placement] (the “Offering”) of [Common Shares]

Type of Security:

[Common Shares]

Oering Size:

[Up to $50 million]

Issue Price: Commission:

$[10.00] $[1 0.00] per [Share] (the “Issue Price” ). [6.0]%

Capitalization:

Approximately $[60,000,0 $[60,000,000]. 00]. Set forth as “Exhibit [A]”.

Dividends:

[Describe the dividend div idend policy.]

Preferential Liquidation Rights:

[Describe any liquidation preferences.]

Denition of Liquidation Event:

[Include denition from legal counsel.]

Conversion Rights:

[Describe, if applicable.]

Anti-Dilution:

[For example: The shares shall have certain customary anti-dilution anti -dilution protection for any share issuances at prices less than the Issue Price based on a weighted average formula, and subject to standard exceptions.]

Voting Rights:

[Describe the voting rights.]

Use of Proceeds:

[The proceeds from the Oering shall be primarily used for general corporate and working capital purposes.]

Closing Conditions:

[Closing of the Oering shall be conditional upon the completion of satisfactory due diligence, the execution of requisite denitive agreements for completion of the Oering, receipt of all requisite corporate approvals and third party consents for the Oering. Etc.]

Agent:

Closing date:


[Generic Capital Corp.] [Date]

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More resources Knowing how to build a term sheet is an important investment banking skill set. In order to prepare for a career in investment banking, corporate development or private equity, e quity, you may nd these resources helpful:

What is Investment banking

Why Investment banking

Valuation techniques

Types of nancial models

To nd out more check out our interactive Career Map. Map.


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E.


Letter of Intent

What is a Letter of Intent? A Letter of Intent (LOI) is often a short non-binding contract that precedes a binding agreement such as a denitive agreement. There are some provisions, however, that are binding such as nondisclosure, exclusivity, or governing law. The main points that are typically included in a letter of intent include: transaction overview and structure, timeline, due diligence, condentiality, and exclusivity (in some cases). Letters of intent are often produced by investment bankers on bankers on behalf of corporate issuers. issuers. Letter of Intent template – example Note: This Letter of Intent template is only for educational purposes and should not be used for any other purpose. CONFIDENTIAL Date | BY ELECTRONIC MAIL | NAME | ADDRESS Dear Name, We are writing to provide a letter of intent from OUR NAME Inc. (“Shorter Name”) in respect of a transaction (a “Transaction”) with TARGET NAME Inc. Inc. (“TARGET NAME” or the “Company”). We appreciate the time and energ y you and your team have aorded us in discussing this opportunity and the information that has been provided thus far. As we continue to spend time evaluating TARGET NAME, we believe that OUR NAME will bring unique value and capabilities to the Company, accelerating the development and growth of TARGET NAME. We believe we could drive TARGET NAME’s growth strategy, by doing X, Y and Z.


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Transaction Overview and Structure Based on our preliminary review of the information provided and subject to the conditions set forth below, OUR NAME is pleased to submit this non-binding letter of intent (the “Proposal”) for a transaction with TARGET NAME. We propose purchasing 100% of the equity of the Company, including all assets and liabilities, in such a way that TARGET NAME still has signicant exposure to future upside. We believe that in order for this transaction to be successful, our interests must be aligned. With that in mind, we have designed a compensation structure that allows all parties to benet from our future success in an equitable way. We oer a total purchase price of $XXX million consisting of: •

$XXX $XX X of cash on closing closing

•

$XXX – shares of OUR NAME, issued immediately upon closing and not subject to any vesting period representing approximately XX% of OUR NAME;

•

$XXX of performance upside – performance shares of OUR NAME (an additional XX%, approximately), issued upon achieving the following targets / milestones:

•

Milestone #1 in year 20XX

•

Milestone #2 in year 20XX

•

The nal purchase price will be adjusted for customary changes in net working capital, which will be reected in the cash component of the purchase price.

Illustrative Timeline Given the importance of timing for TARGET NAME in respect to this transaction, we have proposed a high-level timeline as follows: •

Date: Financial due diligence and valuation work

•

Date: Operational due diligence and OUR NAME visit to TARGET NAME’s head oce

•


Date onward: Drafting of Denitive Agreement

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Due Diligence Process This Transaction is of the highest priority for us, and we are prepared to proceed as quickly as possible. It is important that you make that same commitment to us before we expend additional time and resources pursuing this opportunity. OUR NAME has developed an investment thesis and an understanding of the business through our initial due diligence, including several conversations with management, as well as a preliminary data review. We envision our remaining due diligence would include, but would not be limited to, commercial, accounting and nancial due diligence, as well as customary legal, tax and regulatory work. With the Company’s full cooperation, we believe we can expeditiously complete our due diligence, and present TARGET NAME with a denitive agreement within eight weeks from the date our Proposal is accepted. Exclusivity & Condentiality If the Company is interested in pursuing the proposed Transaction, we would require 60 days of exclusivity (the “Exclusivity Period”) to nalize our due diligence and negotiate denitive documentation, subject to a 60-day extension, if OUR NAME is working in good faith to consummate the transaction at the initial expiration date. In light of our Proposal’s premium valuation, we believe that granting exclusivity at this stage will benet the Project and its Shareholders. In order to complete our due diligence and to secure the additional requisite capital, we will need reasonable access to Company information and the ability to share that information with our prospective equity partners and debt nancing sources in a manner that protects the condentiality of your information and our discussions. A draft form of the exclusivity and condentiality agreement is enclosed as Exhibit A for your consideration (the “Exclusivity and Condentiality Agreement”). We emphasize our desire to complete the proposed Transaction in an expeditious and ecient manner and our readiness to mobilize resources to move ahead quickly. quick ly.


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To that end, and assuming we sign this letter in advance, we would suggest an organizational meeting as soon as possible to agree on the work plan during the Exclusivity Period. Non-Binding Commitment This non-binding indication of interest is condential and may not be disclosed other than to you, the Company and its advisors on a strictly need-to-know basis. It is not intended, and shall not be deemed, to create any binding obligation on the part of OUR NAME, or any of its aliates, to engage in any transaction with the Company or to continue its consideration of any such transaction. Subject to the immediately following sentence, none of the parties shall be bound in any way in connection with this letter unless and until the parties execute a denitive agreement, and then shall be bound only in accordance with the terms of such agreement. Notwithstanding anything to the contrary in this letter, the Exclusivity and Condentiality Agreement, once executed by the parties thereto, shall constitute binding obligations of the parties thereto. We are very excited about the potential opportunity and hope that you are equally interested in proceeding in a constructive and expeditious dialogue. We look forward to working wor king with you to complete this transaction. Very truly yours, Name

Company Name Note: This letter of intent template is only for educational purposes and should not be used for any other purpose.


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More resources Drafting a letter of intent is an important skills for professionals in investment banking, banking , private equity, development . equity, and corporate development. To take your corporate nance career to the nex t level, you may nd these resources helpful:

Term sheet template

Beauty contest

How to get a job in investment banking b anking

Valuation techniques

Types of nancial models

To nd out more check out our interactive Career Map. Map.


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F.


Teaser: The First Glance

When a company decides to go for a sale process, the rst and foremost objective of the company is to get the maximum price from the sale process. In order to achieve this, the company hires investment bankers or M&A advisors. The objective of the banker is also to get the maximum value, as their commission is dependent on the valuat ion of the business. In order to get maximum valuat ion, it becomes imperative for the bankers to market it well among the potential acquirers. Hence, the bankers prepare a professional document known as “Teaser”, wherein it highlights the company’s business, nancials, projected growth, customers, etc. to attract potential buyers. At this point, the company doesn’t want to disclose its identity and wants to be absolutely condential. Hence, the “teaser” prepared is without the company’s name. What is a teaser? An investment teaser is a 1-2 slide summary about the complete sale process without mentioning the name of the company so as to maintain the condentiality condentialit y of the company. A teaser should be prepared to mention the Unique Selling Points (USP) of the company while ensuring that the value of the t he business is understood by a larger set of audience. A wider search for buyers helps as one may never know what a buyer may be interested in and may pay a hefty premium. Contents of a Teaser •

Industry Overview – A very brief summary of the industry and the competitive landscape in which the company operates in.

•

Business Description – It contains the company’s capabilities, the nature and kind of products or services it oers to the customers. One should ensure that it is simply not copied directly from the


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company’s website, otherwise the identity of the company will be revealed just from free internet searches. •

Location – It is also important for the sellers to mention the geographic presence of the company’s headquarter location. This may allow potential buyers to think from a synergy perspective or a way of entering a new market.

•

Financial Summary – This is something which is extremely important as every investor invests in a company that has a certain nancial history. Some investors prefer to invest in small companies with revenues of US$5 million to US$50 million, w hile others may like to invest in big companies with revenues rev enues in the range of US$100 US$100 million to US$500 million. Financial summary also contains the future projections of the company with EBITDA margins.

•

Investment Rationale – It describes the USPs of the company and the reason why investors should consider buying the company. Some examples of investment rationale can be – recurring revenues, enterprise customers, concentrated customer base, latest technology, proprietary platforms, patents, etc.

•

Customers Overview – Few teasers also highlight several names of their customers, especially if they are very big brands in their sector, to build credibility for the company.

•

Transaction Structure – It deals with the nature of the transaction that the sellers are expecting. It may be a complete sale of the business, carve-out, venture nancing, etc.

•

Bankers Information – The teaser also mentions whether the sale process is taken up by an exclusive e xclusive banker or it is a joint exercise by 2 bankers. The contact details of the bankers are also mentioned, so that a potential buyer may easily get in touch with them for any kind of information or clarication they may seek.


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The Next Steps The Teasers are sent to potential buyers – both strategic investors (i.e. the companies who are operating operat ing in a similar business) as well as the t he nancial investors like Private Equity (PE) rms. Bankers want to identify these buyers’ interest in a potential deal. As a next step, if the potential buyers feel interested in the business, they would sign a Non-Disclosure A greement (NDA) with the company. NDA is signed to maintain the condentiality of the company and to ensure that information shared by the seller is not used by the potential acquirer for its personal or competitive gain. Once an NDA is signed, the seller discloses its identity with more information contained in Condential Information Memorandum (CIM).


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PART 02


Presentation Data Visualizati Visualization on

01

02

03


87


A.


Overview of Dashboards Overview Dashboards and Data Visualization The Importance of Dashboards and Data Visualization Financial analysts are required to present their ndings in a neat, clear and straightforward manner. They spend most of their time with spreadsheets in excel, building nancial models and cr unching numbers. These models and calculations can be pretty extensive and complex, and they may only be understood by the analyst who performed the work. It is the job of the analyst, therefore, to eectively communicate the outputs to the targeted audience such as the management team or the company’s external investors. This requires focusing on the main points, facts, insights and recommendations that will prompt necessary action from the audience. One of the challenges is to make an intricate and elaborate work easy to absorb and comprehend through the help and use of great visuals and dashboards. For example, tables, graphs and charts are tools that an analyst can use to their advantage to unlock the deeper meaning of a company’s nancial information. These tools organize relevant numbers that are rather dull and dry and give life and story to them. Here are some key objectives to think about when performing nancial analysis:


1.

Visual communication

2.

Audience and context

3.

Charts, graphs and images

4.

Focus on important points

5.

Design principles

6.

Storytelling

7.

Persuasiveness

8.

Dashboards

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For a further breakdown of each of these objectives, check out our course, Excel Dashboards & Data Visualization, Visualization, to help you become a world-class nancial analyst. Charts and Graphs for Great Visuals Charts and graphs make any nancial analysis readable and easy to follow. They are often included in the nancial model’s output, which is essential for key decision-makers in a company. These decision-makers comprise executives and a team of managers who usually won’t have enough time to synthesize and interpret data on their own to make sound business decisions. Hence, it is the job of the analys t to enhance decision-making and help guide the executives and managers to create value for the company. When an analyst uses charts, it is necessary to be aware of what good charts and bad charts look like and how to avoid the latter when telling a story with data. Examples of Good Charts With great visuals, you can quickly see what’s going on with the data presentation, which will save you time for deciphering their actual meaning. More importantly, great visuals facilitate business decision-making, because their goal is to provide persuasive, clear and unambiguous numeric communication. For a good ref erence, take a look at the gure below that t hat shows a dashboard, containing a gauge chart for growth rates, bar chart for number of orders (i.e. a retailer), area chart for company revenues and a line chart for EBITDA margins. To learn the step-by-step process of creating these essential tools in Excel, watch our video course titled “Excel “ Excel Dashboard & Data Visualization”. Visualization ”. Aside from what is given in the example below, our course will also teach you the purpose for using other tables and charts to make your nancial analysis stand sta nd out, professionally.


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Example of Poorly Crafted Charts A bad chart, as seen in the gure below, will give the reader a dicult time to nd the main takeaway of a whole report or presentation. They often contain too many colors, labels, legends and thus, will often look too busy. Also, it doesn’t help much if a chart, such as a pie chart,, is displayed in 3D, as it skews the size and the perceived value chart of the underlying data. Overall, a bad chart will be hard to follow and understand.


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Storytelling with Data, Visuals and Text Aside from just understanding what the numbers mean, a nancial analyst must learn to combine numbers and language to craft a story. Relying on data only for your presentation may make it dicult for your audience to read, interpret and analyze your data. You have to do the work for them. Having a story will act as a guide, as it will help you and your audience arrive at the main points faster rather than just having a presentation full of numbers only that only you can read. The data to be organized can be in the form of revenues, expenses, prots and cash ow. Even simply adding a dding notes, comment and opinions to each line item will add an extra layer of insight, angles and new perspectives. Furthermore, by merging data, visuals and text together, the resulting story will give a clear sense of what is happening with the current situation, what happened in the past, and what conclusion and recommendation can be made for the future. Audiences for Data-Analysis Presentations The simple diagram below shows the dierent ca tegories of your audience:


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Internal Audience An internal audience can either be the executives of the company or every employee that works in that company. For executives, the purpose of communicating a data-lled presentation is to give an update about a certain business activity, such as a project or an initiative. Another important purpose is to facilitate decisionmaking, as mentioned earlier, ear lier, with regards to managing the company’s operations, growing its core business, acquiring new markets and customers, investing in R&D and many others. Knowing the relevant data and information beforehand will guide the decision makers in making the right choices that will best position the company to become more successful. External Audience An external audience can either be the clients of the company, where there are projects currently in progress, or new clients that the company wants to build new relationships with to w in new businesses. The other external audience is the general public, such as the company’s external shareholders and prospective investors. When it comes to winning a new business, the presentation made by the analyst will be more promotional and sales-oriented, whereas a project updated will contain more specic information for the client with plenty of industry jargons. Audiences for Live and Emailed Presentation A live presentatio presentation n contains more visuals, story telling and connects with the audience. It has to be more precise and should get to the point faster while avoiding a long-winded speech or text because of limited time. In contrast, with an emailed presentation, it is expected to be read, so it will have more text. Just like a document or a book, it will include more detailed information, because its context will not be explained with a voice over just like a live presentation.


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When it comes to details, acronyms and jargons in a presentation, these things depend more on whether your audience are experts or nonexperts. The Big Idea Every great presentation with dashboards and data visualization requires a big idea. It is the main purpose of the presentation and should be addressed clearly, remembered well, its signicance highlighted and should cause the target audience to bring action to the matter. An example of a serious and profound idea is given below:

“Despite signicant growth in our company’s top line and improving EBITDA margins, we require a signicant capital investment next year or we will run out of money.”

To communicate communicate this big idea, we have to come up with appropriate and eective eecti ve visual displays to show both the good and bad things surrounding it, but placing a huge emphasis and at tention on the more important part, which is the critical cash balance and the capital investment situations for next year. Storyboarding Storyboarding, found in the gure below, is how an analyst would build the presentation based on this big idea as mentioned earlier. Once the issue or the main idea has been introduced, i t will be followed by a demonstration of the positive aspects of the company’s performance, as well as the negative aspects, which are more important and will likely require more attention. Various ideas will t hen be suggested to


93



solve the negative issues. However, before choosing the best option, a comparison of the dierent outcomes of the several, suggested ideas will be performed. Finally, a recommendation will be made that centers around the optimal choice to tackle t ackle the imminent problem highlighted in the big idea.

To get to the nal point (recommendation), (recommendation), a great deal of analysis have been performed, which includes the necessary charts and graphs to make the whole presentation easy eas y to follow, convincing and compelling for your audience.


94


B.


Types of Graphs

Top 10 Types of Graphs Any nancial analyst knows the importance of eectively communicating results, which largely comes down to knowing the dierent types of charts and graphs, and when to use them. In this guide, we outline the top 10 types of gr aphs in Excel, and what situation situat ion each kind is best for. for. Learn how to deliver powerful presentations and clear takeaways with these eective chart types.

#1 Line Graphs The most common, simplest, and classic graph is the Line Graph. It’s the perfect solution for showing multiple series of closely related series of data. Since line graphs are very lightweight (they only consist of lines, as opposed to thicker chart types, as shown further below), they are great for a minimalistic look.

Tips: •

Remove all gridlines

•

Remove any shading or borders

•

Highlight a single series with a dierent color


95



#2 Bar Graphs Bars (or columns) are the best types of graphs for presenting a single data series. Bar charts have a much heavier weight to them than line graphs, so they really emphasize a point and s tand out on the page

Tips: •

Remove all gridlines

•

Reduce gap width

Source: Dashboards and Data Presentation course

#3 Combo Chart The two types of graphs above can be combined to create a combo chart with bars and lines. This is very useful when presenting two data services that have a very dierent scale and might be expressed in dierent units. The most common example is dollars on one axis and percentage on the other axis.

Tips: •

Delete borders and gridlines

•

Add a legend

•

Reduce gap width for the bars

•

Adjust the axis

Source: Dashboards course


96



#4 Scatterplot The scatterplot is excellent for showing the relationship between two data series and determining their correlation. The scatterplot is great for showing what the distribution of data points looks like and drawing a line of best t for regression analysis.

Tips: •

Clearly label each axis

•

Add a trendline

•

Highlight clusters of data

#5 Waterfall Chart In Excel 2016, Microsoft nally introduced the waterfall chart. In older versions of Excel, analysts had to create a custom workaround using stacked column charts. If you use a version of Excel prior to 2016, please see our free guide and waterfall chart template here. here . The waterfall chart is excellent for variance analysis and explaining how an “actual” result was dierent than a “budget,” or how something has changed relative to an original data point.

Tips: •

Set the start and end points to be “totals”

•

Format positive and negatives

•

Clear away gridlines


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#6 Pie Graph Pie charts have a bad reputation and are known for being messy and hard to read. If you’re trying to illustrate the percentage breakdown of a small number of data point, they can be very eective. For example, the diagram below shows the percentage of people who prefer bananas, pineapple, and grapes.

Tips: •

Keep it 2-D only

•

Don’t graph more than 5 items in one pie

•

Use infrequently

#7 Histogram Histograms are the types of charts that show the distribution of a dataset. They graph the percentage or the number of instances of dierent categories. For example, in a distribution of age categories (0-10, (0-1 0, 11-20, 11-20, 21-30, 21-30, etc.), we c an clearly see which categories ca tegories are the biggest, and how many people fall into each.

Tips: •

Set gap width to zero

•

Add subtle border between bars

•

Add data labels


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#8 Gauge Chart The gauge chart is perfect for graphing a single data point and showing where that result ts on a scale from “bad” to “good.” Gauges are an advanced type of graph as Excel doesn’t have a standard template for making them. To build one, you have to combine a pie and a doughnut. Learn how in our data visualization course. course.

Tips: •

Best for a single data point

•

Shows performance on a scale (i.e. bad to good)

•

Learn via video instruction

Source: Advanced Excel Course

#9 Area Chart An area chart graphs a solid area and can be eective when showing a stocked, cumulative data series, e.g. showing the cumulative sales revenue from dierent products. This allows the reader to easily visualize the “area” (or weight) of each series relative to each other.

Tips: •

Use stacked area

•

Graph data that is cumulative

•

Use colors carefully


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#10 Spider Chart / Radar Graph A spider or radar graph is very useful for showing qualitative data or the overall “score” or comparison of multiple series. For example, a spider/ radar can be easily used to compare 3 dierent types of phones based on 5 criteria (speed, screen size, camera c amera quality, memor y, apps).

Tips: •

Keep it simple

•

Only graph a few series/items

•

Format to be minimalistic

•

Remove markers

Additional resources This has been a guide to the top 10 dierent ty pes of graphs that analysts need to perform top-notch analysis. To keep learning and developing your career, you will nd these additional resources helpful:

Advanced Excel formulas guide

Dashboard creation in Excel

How to make a pitch book

Data visualization course


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C.


Football Field Chart

What is a football eld chart? A football eld chart is used to summarize a range of values for a business, based on dierent valuation methods. methods. The purpose of the chart is to show how much someone might be willing to pay for a business, whether acquiring all of it, part of it, or even a single share (depending on the a udience).

Why is it called a football eld? The bars look like yard lines on a football eld, and hence the name. Also, the graph is commonly used in investment banking, banking , and bankers like sports analogies.


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Why use a football eld chart? A football eld chart is used to visually show what the range of values for a business are and see where an average target valuation lies compared to several alternatives. It’s common to see these charts in investment banking pitchbooks pitchbooks or or equity research reports. How do you make a football eld chart? Football elds are easy to make in Excel using the stock chart option. Here are the steps of how to make a football eld chart in Excel: 1.

Create a table in Excel with the range of values.

2.

Insert a stock chart type called Open-Low-High-Close.

3.

Set the Open and Low values as being the same.

4.

Set the High and Close values va lues as being the same.

Download our free football eld chart template here.


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More corporate nance resources At CFI, our mission is to help you advance your career. With that in mind, we’ve created a vast library of resources to help you along your journey. Here are some useful topics we think you w ill nd valuable:

Investment banking interview questions

Valuation methods

Excel formulas and functions

Lists of investment banks

For more guidance with career development, check out our interactive Career Map.


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D.


Excel Waterfall Chart How to create a Waterfall chart in Excel

Excel Waterfall Chart If you’re working in E xcel 2013 2013 or earlier versions, please follow the instructions below as a workaround to build your own waterfall chart using the stacked column chart feature. Step 1 – Organize the Data In order to build your own waterfall chart, you rst have to organize your data as follows: 1.

Start Column – enter beginning value

2.

Base Column – formula calculated for you (nothing required)

3.

Increase Column – enter any increases

4.

Decrease Column – enter any decreases

5.

End Column – formula calculated for you (nothing required)

Step 2 – Insert a Stacked Column Chart In the “Insert” “Insert ” ribbon across the top, select a “2-D Stacked Column Chart.” Then enter the 5 series listed above as shown in the image below.


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Step 3 – Format the Chart Format the chart so that the base column ll color is “no ll,” which has the eect of making it invisible. Since older versions of Excel are not designed to make waterfall charts, we have to insert invisible data series to make it work. If you click within the column area, you will notice that the invisible section is just a column stacked under the colored column. Additionally, you may want to decease the series gap widt h and remove the grid lines. Step 4 – View your Final Product

Step 5 – Download the Template for Free Start creating your own chart in our Free Excel Crash Course! Course!


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More Excel Resources Check out more of our resources to take you Excel skills to the next level:

List of Excel formulas and functions

Free Excel course

Advanced Excel formulas course

Excel shortcuts

All Excel resources


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PART 03


Soft Skil Skills ls Preparing for an Analyst Role

01

02

03


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A.


Becoming a Financial Analyst

How to become a nancial analyst – 5 Steps We’ve seen thousands of people become nancial analysts over the years and know precisely what it takes. In this career guide, we will outline exactly how to become a nancial analyst by networking, perfecting your resume, preparing for interview questions, telling your personal story, and mastering the art of nancial modeling and business valuation. valuation. Step #1 – Match your personality with a career map Before jumping in head rst, it’s important to know how nancial analyst roles dier across the corporate nance universe. There’s a big dierence between a buy side analyst, analyst, a commercial banking analyst, analyst, and an equity research analyst (just analyst (just to name a few). In our Career Map, Map, we outline what type of personality is best suited for each type of analyst position. Whether you’re introverted, extroverted, competitive, analytical or sales oriented, it will have a big impact on which role you go for f or.. Step #2 – Start networking (a lot) The key to getting a job in most areas of nance is networking. Like it or not, it’s the truth. We have several specic ideas and tips around networking that will help you out: 1. Join an investment club – Whether you’re in universi ty or a working work ing professional, there are many types of investment clubs that you can join. By joining a club, you’ll be able to network with other nancial analysts, learn more about nance/investing, and hear about job opportunities.


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2.


Start a group on MeetUp.com – This goes one step further than joining a club. By starting start ing your own group, you can be in control of the topics covered, types of people who’ll join, etc. and you’ll have a perfect reason to reach out to working professionals you want to meet – to ask them to be a guest speaker at your meetup event!

3.

Use your alumni network – Ask your university for a list of all nance professionals working as analysts who are willing to be contacted for mentorships and networking. It’s an easy introduction if someone is from your alma mater. Just remember not to ask them for a job and keep the discussion more about understanding what they do in their job.

Step #3 – Tailor your resume and cover letter This part is fairly straightforward. We have developed extensive resources to help you build a Wall Street quality r esume and ace multiple rounds of interviews. For more on resumes and cover letters, please refer to: •

Cover letter template (and tips)

•

Resume template (and tips)

When building your cover letter and resume (resources above), it ’s important to weave a compelling personal story. The story has to clearly explain: (i) where you are coming from, (ii) where you are now, (iii) and a nd where do you want to be in the future. If you can connect these dots in a logical way and also demonstrate you’re a good culture t, that’s more than half the battle. Step #4 – Use interview guides to ace the interview Like most other things in life, being great at interviews takes practice. The best ways to practice are through (1) networking (as discussed above) and (2) using professional interview guides. We’ve provided below four professional interview guides that use REAL questions from REAL corporate nance interviews. These are used thousands of times over at global banks.


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Please review our interview Q&A guides on how to be ready for any question: •

Investment banking analyst interview

•

Equity research associate interview

•

Credit analyst interview

•

FP&A analyst / manager interview interview

Step #5 – Master the technical skill This is listed last, but it’s actually spread out over all of the four steps above. CFI courses are specically designed to give you the hands-on training you need to master nancial modeling and become a nancial analyst. By taking our courses, you’ll be sure to learn industry best practices and all the most important tips and tricks. Our classes are based on real nancial analyst training programs at Wall Street’s major banks. Our courses are organized into several groups, with the most critic al being: •

Accounting

•

Excel

•

Finance

•

Financial modeling

•

Advanced topics

If you want all of the above, a bove, the best value is our Full Access Bundle. Bundle.


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B.


Guide to Getting a Job in Corporate Finance How to get a job in corporate nance After spending several years in investment banking, banking , we’ve seen hundreds of resumes and conducted countless countless interviews with new analysts and associates. The advice below is a guide based on our rsthand experience of what is the most eective way to get a job in corporate nance. Step 1: Networking and resume The rst step on your path to a corporate nance career is to get an interview. Finance careers are extremely competitive with way more applicants than new hires each year year.. You will often be up against students from Ivy Leagu League e universities, a high GPA, GPA , and multiple internships under their belts. How can I use networking to get an interview? Networking is a great way to help your chances of getting an interview. If you are at a target school (a school (a school that investment banks recruit directly from), you don’t have to worry as much about networking as opposed to someone from a non-target school. Below are four easy approaches: 1.

An easy way to start networking is to talk to your career center and ask to be introduced to any alumni working at investment banks you want to target.

2.

Another approach is to use LinkedIn and nd any connec tions who can introduce you to bankers you want to network with. Be sure to frame the request around learning more about the industry, and not about getting a job or an interview.

3.

A third approach is to join the local CFA society in your city and network with local professionals who may know investment bankers and who can introduce you to them. t hem.

4.

Attend the National Investment Banking Competition (NIBC), Competition (NIBC), where hundreds of schools from around the world compete in a live investment banking case competition.


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Resume Guide & Template View templates


How do I write a corporate nance resume? Step 2: Understanding the interview process. The corporate nance interview process is highly structured. The banks move quickly to screen resumes, conduct rst round interviews, hold on-site interviews in their oces, and extend job oers. What should I expect in the rst round interview? The rst round interview will either be on the phone or on campus (if you’re at a target school). school). You will be asked three t ypes of questions: problem-solving, technical, and behavioural. The rst round interv iew will have all three types of questions; questions ; however, they will be more focused on the technical ones. The objective of the rst round is to quickly screen candidates between those who live up to their resume and those who don’t. What should I expect in the nal round interview? The nal round (often called “Super “ Super Day”) Day ”) will be held on-site with everyone being own into the oce from their respective school or hometown. The nal round will typically include interviews with dierent people, ranging in seniority. Generally speaking, the more junior the person interviewing interview ing you, the more technical their questions will be, and the more senior the person, the more behavioural their questions will be. It’s important to dress right for the interview, which typically means wearing a suit that’s black/blue/gray and nothing too bold. It’s less about trying to impress them and more about trying not to come across negatively. Some banks will make decisions immediately following Super Day (i.e. Day (i.e. the same or following day) with most getting back to you within a week.


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Step 3: Knowing how to answer the interview questions. What questions will I be asked in the interviews? As mentioned above, there are three types of interview questions: problem-solving, technical, and behavioral. The link below contains specic examples of each type. We have prepared a full example of a real investment banking interview for you to practice with. It uses real questions used by investment bankers to hire analysts and associates in large global banks. Real Interview Questions & Examples Step 4: Mastering technical skills The main technical skills to master are valuation valuation,, nancial modeling, modeling , accounting,, and Excel accounting Excel.. Enroll in our online courses to help you become fully prepared for how to get a job in corporate nance. Summary of how to get a job in corporate nance The nance hiring process is very formulaic. The key is to understand the process and tick all the boxes without making any fatal mistakes. This means limiting your resume on one page, having a good GPA, gaining relevant work experience, and demonstrating you can gracefully answer both technical and behavioral questions. Following the steps in this guide on how to get a job in nance will provide a great framework for your preparation. At the end of the day, there are no real shortcuts, and you still have to put in the hard work to become well prepared.


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Additional career resources We hope this has been a useful guide to help you advance your c areer. Please check out our other helpful guides and resources:

Financial modeling guide

How to link the nancial statements

Interview guides

Financial modeling resources

Corporate nance training


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PART 03


Soft Skil Skills ls Dealing Deal ing with Industry Industry Professionals

01

02

03


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A.


Personal Brand

What is Personal Brand? Our personal brand is what people see from us. It reveals who we are, what we oer and what we value. v alue. When we work in a company, our colleagues will have a perception about us based on how we present ourselves to them. This T his can either be good or bad, depending on how our unique image comes across. So, it’s important to take care of it, because we always want others to think positively of us.

Personality, Skills and Values Personal brand can be broken down into three things: personality, skills and values. They are expressed when we share our thoughts t houghts and opinions to others during a conversation. Also, working with our colleagues on a regular basis gives them the opportunity to learn things about us, including how productive we are in the workplace. Overall, the goal is to have a positive personal brand that others will admire and respect.


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Examples of positive personality traits are: Intelligent

Reliable

Trusting

Condent

Driven

Hard-working

Charismatic

Friendly

Examples of favorable skills are: Analy tical

Presentation

At tention to detail Problem-solv ing

Research

Communication

Writing

Tech -Sav v y

Examples of important values to have: Int e g r i t y

Loyalt y

Grow t h

Discipline

Excellence

B o l dn e s s

Per formance

Humility

Lifetime of Making Good Decision Creating a personal brand that’s well received by everyone takes years to accomplish. First of all, it takes time to get to know everyone we’ll meet and work with wit h in our professional careers. To get get to know who we are, our colleagues have to be around and interact with us on a consistent basis. Once we develop some type t ype of working relationship with others, we have to consistently make optimal decisions at work. Whether it is sharing the best ideas we have, sending high-quality analysis and nancial modeling work to our team or nishing a project before the due date, we’re building a reputa tion of excellence that will be commended by our peers.


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Start with a Positive Attitude For starters, let’s maintain a positive attitude about our work. It leads to success and happiness. By doing so, it will be easier to attract other people to work alongside us, help us with anything or to just chat with us during our break. Having this at titude will allow us to keep going in terms of getting things done and reaching our long-term goals. On the other hand, it’s easy to be derailed from our progress with negative thinking. Nobody really wants to work with anyone who always has a negative outlook about work and life in general. This type of people often dislike their job and working closely with their coworkers. They will likely encounter more setbacks in their careers, because their approach to virtually anything is cynical and pessimistic. They rarely see the good in others and lack the belief that success will come if we keep trying and learning from our mistakes. Aside from having a positive attitude, it also helps our personal brand if we constantly aim to put forth our best eorts in every ever y signicant task we do. Become a High Achiever In any nancial, accounting or consulting rm we wor k in, we’ll be judged based on our work ethic. The person who works the hardest receives reward and recognition, especially from a company that values merit. Every team in an organization values a member who is a high achiever. These are the individuals who are willing to go beyond their assigned tasks and responsibilities. Not only are they good at performing their standard roles, but they take initiative to complete extra tasks and help others who need it. Being a high achiever will get us far in our careers. We draw the attention of others, especially our senior-level coworkers. We are denitely an exceptional asset to the team, and the company will do their best to keep us through salary increase or promotion to name a few. Once we have a decent personal brand, we can attract great opportunities to advance our career.


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Finding New Opportunities will be Easier If others know that we are smart, hard-working, humble, act in a professional demeanor and persistent in pursuing our dreams, other people will believe in us. For instance, if we decide to switch careers and look to grow in a new company, we’ll need a list of references to prove that everything we say about ourselves is true. This list contains individuals, mostly past employers and coworkers, who have plenty of nice things to say about us. Their permission is needed rst. If they agree to be our reference, then they’re convinced and condent that we are the right candidate for any rm, because we have proven to have favorable skills, values and great personality to them. We can’t fake our personal brand. Other people can see right through us. When networking with industry professionals, they will ask questions about our academic performance and work experience among other things. If we happen to be sitting in front of someone with the power to make hiring decision, t hey could ask for our list of references. This is the part when having an established personal brand will work in our favor. Our Actions Speak Volume Action speaks louder than words. Below are some examples of actions that, if not done correctly, can ruin our personal brand. Be on time Making it to work on time or even earlier than anybody else shows that we’re hard-working and committed to doing our very best work. It also means that we value everyone’s time, because being tardy with our work schedule will leave a bad impression on our colleagues and our clients, especially when we have a meeting with them. Following Through on What We Promise to Do Let’s be a man of our words. Many people will say all the things they’ll do for a person, a group or a company, even going as far as making a sincere promise to get those things done. However, not every person actually follows through on their promises. Once we build expectation


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from others after saying that we’re going to complete something, make sure we do them. Our capability and reliability are being put to the test here. The more we can’t keep our words and promises, the more people question our credibility. Give Undivided Attention Not giving eye contact and full attention to someone, when he or she is speaking to us, can be interpreted inter preted as being disinterested in the presence of that person. Having Hav ing a bad habit like this will denitely prevent us from interacting with the other person again. Don’t Create Drama Avoid partaking in petty gossips about other people in the workplace. It will hurt our personal brand, because we will be forced to say something bad about other people when we entertain gossips for too long. If we don’t like a person, a treatment or a particular task, we always have to handle these situations with class and dignity. Operate with the Highest Level of Integrity Having strong ethics and morals in place are very important in business and nance. They help us distinguish between good and bad, and between right and wrong in our daily actions. Ethics are concerned about the shared, practical principles of right conduct, whereas morals are concerned more with our own personal judgement of right and wrong. We must be honest in everything that we do in the workplace and always do the right thing for all involved stakeholders.


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B.


Oce Politics

What is Oce Politics? Politics exists in organizations. They are activities performed by individuals to improve their status and to advance their personal agenda at the expense of others. These self-serving actions ac tions are informal or unocial and could be the reason why politics in the workplace has a negative connotation. However, there are good oce politics, and these are more identied as networking and strengthening stakeholder relationships. relationships. The truth is we must develop political know-how. We often don’t like to talk about them, but in reality, workplace politics do exist. Doing so can prevent anybody from taking advantage of us. If we fail to develop these skills, we get left behind in terms of career advancement. The suggestion here is not to become a highly political person but to be aware of the politics in our organization.


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What causes Oce Politics? The motives for a person to engage in workplace politics are to sell their ideas, achieve a targeted objective, inuence an organization or increase their power. To achieve all of them, politically-motivated individuals will form alliances, bargain and negotiate to get what they want for themselves and/or for their group. Furthermore, these individuals will lobby their bosses before the bosses make a promotion. Also, they will bypass the existing chain of command to get approvals for certain decisions or projects. What’s more is people or groups within an organization have dierent interests. These interests are not always aligned with others. Therefore, in order to be successful, some individuals will have to engage in politics. Politics and Competition If there are scarce resources in an organization, this will breed competition, and surely, there will be politics in place. For instance, because of the limited positions within a rm, such as an investment bank, individuals will nd various ways to get promoted. Furthermore, when a person wants to control a project and make a dicult decision, they will want to get the approval of others, usually from their senior coworkers, even when others are against them. Virtually all organizations have a pyramid hierarchy. This means there are fewer positions to be lled as one climbs up the ranks. Not ever yone gets the promotion they’re after, as only a handful of executive positions are available.


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Example: Hierarchy in Investment Banking Analysts In investing banking, for example, you start your career as an analyst. This is when you will spend most of your t ime learning the ropes. Your main tasks will involve around analysis, creating presentation materials and even doing mundane, administrative tasks. If you’re considered a top performing analyst, you may receive an oer to stay for more years. Associates After two or three years, you’ll be promoted to the associate level. If you did really well as an analyst, some banks will oer you a direct promotion. However, other banks will require you to get your MBA rst before going back to work as an associate. The work will be similar for the associate and the analysts with the former having added responsibilities of managing the analysts’ work and acting as the liaison between junior and senior bankers. VPs and MDs Reaching the VP role requires about three t hree and a half more years of investment banking experience as an associate. But not everybody can become a VP in the same bank, unless there’s a need for another one. It becomes even narrower when trying to reach director status. That will require about three to ve years spent as a VP before a successful transition, but only if there’s an opportunity. In trying to achieve those roles, you have to assess your situation as to whether it’s a good idea to stay in the bank or look elsewhere for a promotion. For the roles of senior bankers (VPs and MDs), they build and maintain business relationships with current or new clients. They continuously source new deals and have deep expertise in their industry landscape. Not everyone is good at doing this, as you need to have exceptional interpersonal skills. The whole process is very selective.


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Limited Recognition, Reward and New Role to Advance Career As we can see, it takes years to climb up the investment banking hierarchy. The chances of an analyst making it to MD level someday is small, considering there are much more analysts than MDs working at any major bank. The higher the role you’re trying to reach, the ercer the competition becomes. On average, it takes about 16+ years from analyst to managing director at most major investment banks. Aside from the limited availability of investment banking jobs, competition also emerges for what comes as a package from the senior roles, which are respect, lifestyle and prestige. This is why we must know the politics in our organization. There’s a possibility that some of our coworkers will have strategies to gain unfair advantage over us, even if our skills on the job are more superior than theirs. The culture in most investment banks, Big Four accounting rms and major consulting rms is intense. Generally, they have a reputa tion for their cutthroat meritocracy, unless the head of a group creates a partial and nepotistic environment. It denitely attracts the best and brightest business students from top universities, and frankly, everyone is replaceable, so we have to work hard. E ven on the weekends, we are expected to work long hours. For a major investment bank, the number of hours spent on a weekly basis are somewhere between 80 -1 -110 10 hours.


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We may feel resentment or even jealousy towards the person who’s politicking to achieve what they want. The reason for this is not everyone engages in politics. Instead, the rest rely on proper procedures, thereby making it unfair for us and our coworkers when we get taken advantage of without knowing it. This is true, especially, when rewards and recognition, which are scarce, are given to those individuals who use politics to attain them. Changing Bad Politics Here are some things we can do when w hen we experience bad politics in the workplace: Make Many Friends To change change bad politics in the t he workplace, we need to get involved. involv ed. A very common thing that can happen in the workplace is a coworker using their power to intimidate and oppress other s. One thing we can do is to make friends with our colleagues and share any thing that we may nd wrong in the workplace. It’s a good idea to point out negative behavior that aects the performance of everyone. Forming a group against the person doing the negative politicking will isolate that person, contain their behavior and expose them for what they do. Keep Record of Your Work If we nd someone taking credit for our work, we shouldn’t just directly expose that person in the open at the oce. Instead, the most professional thing to do is to thoroughly document our work. We should regularly update our bosses’ superiors and coworkers about our progress and work output. This protects us from anybody that challenges our contribution to the company, or even questions our skills. More importantly, it protects our reputation, because we can easily prove our level of productivity to anyone.


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Don’t Retaliate the Same Way When there’s a coworker who tries to underestimates us or make us look bad, we may harbor animosity towards that person and even try to retaliate. But we must be careful of losing our temper and professionalism. Attempting to do something can also backre. We won’t be able to change the person’s behavior this way. What we can do is to talk privately with that person and ask them why they acted in that manner. This is a far better approach, because it will make that person reect on their negative actions. So, when we start our nance work in a company, let’s determine whether or not it’s overly driven by politics. We must be aware of the destructive aspects of oce politics in order for us to minimize their negative eects. Letting it happen can provide the grounds for others to take advantage of us. We must learn how to navigate our way through it to prevent ourselves from having a lower job satisfaction, less commitment to the organization, job anxiety and poor performance on the job. In Summary Being good at politics in the workplace is knowing who the right people to speak to, handling public put-downs well, how to make your work relevant and yourself more visible, and how to move projects along. At the end of the day, we have to make sure that (1) we understand the politics in our organization, (2) we devise a strategy on how to successfully navigate them, and (3) we constantly check in with ourselves.


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C.


Part 1: Networking and Building Relationships within the Company Analysts Work in Teams When we work as analysts, we are expected to work with a team of professionals who have dierent personalities, work ethic, knowledge, skills and experiences. We may end up working wit h a group of people who have some similarities to us or who are the complete opposite of who we are. Regardless, we should learn earl y on, especially while we’re still in college or universit y, to quickly adapt to our surroundings and to work with a diverse group of people to achieve a common goal.

An analyst interacts daily with his or her colleagues to share ideas, ask questions, tackle a problem, work on a project or update each other about the progress of their own tasks. Moreover, meetings are very common in the workplace and often occur on a weekly or monthly basis. As we can see, there are plenty of opportunities to work alongside our colleagues.


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Ideally, we want to get along with everyone. However, we may nd ourselves in a situation where we just don’t agree with our coworkers. Depending on how vocal we are with our thoughts, comments and opinions, we probably have the urge to cr iticize and condemn that person for not thinking like us and not producing the same level of work as we do. It’s easy to fall into this trap without knowing consciously that we’re doing it. This is an unwise move to make, especially if we’re trying to build long-lasting and meaningful connections within the company we work in. Avoid Destructive Criticism Too much criticism against someone can hurt our chances of building a professional relationship with that person. In fact, they may bear resentment towards us and will nd us unpleasant to work with. This will ruin our chances of working with others again in the future. If we try to focus more on acknowledging and congratulating the good behavior of people, while politely pointing out any areas for improvement, they will treat us with respect instead of avoidance and repudiation of our ideas. They will think positively of us. A person is willing to learn at a faster rate and retain more of what they’ve learned if they have been commended for the good things they’ve done as opposed to criticizing them for bad things. Remember that criticism, especially a destructive one, can hurt a person’s pride and would make a person feel less important. Instead of quickly criticizing a person, we should understand why people are as they are. Give Appreciation to Co-Workers Learn to appreciate every person we meet within the company. As mentioned earlier, we will have a chance to come in contac t with them or even work alongside them on a regular basis. Sometimes, we don’t take the time to appreciate other people’s work, even when there’s a lot to be learned from them. Within the rst several months, as an analyst, we will often have mentors or senior analysts who will guide and train


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us to get the most out of our job. These people are taking their time to share their knowledge and experiences with us, so that we can perform well and eventually, advance in our car eer eer.. An honest and sincere appreciation for f or others can really reall y go a long way. For those who have helped us, the least we can do is highlight their strengths and let them know they have been valuable in making us become better analysts. By giving genuine appreciation, we, too, are helping others become more successful, because we are giving them a positive perception of themselves. This brings out greater enthusiasm for their work and even improves their motivation to succeed. We must be specic with wit h our praise and encouragement. The more details we provide, the better, because it really shows that we’re not making a shallow and insincere statement. Since they’re aware of the benecial impact they have on our work performance, our colleagues are more likely to help us again the next time around. Align Your Wants with the Other Person’s Wants Once we start working, our colleagues are expecting that we put in our best eort. We have been chosen for the role, because they believe we meet all the qualications, and that we are, truly, a value added to the company. What they want is for us to make their job less dicult by making sure we deliver on our responsibilities. They expect that we can manage to produce our work on time while maint aining high standards and quality. As we do so, we make our team , especially our boss (the VPs and MDs) look good. We have to put ourselves in our coworker’s shoes to see their point of view. They want to succeed in their jobs jus t as much as we do. Senior roles such as the VPs or MDs, for example, are more clientfacing, and therefore, they want to establish great business with their corporate clients. To make long-lasting, benecial relationships, our company must provide exceptional service. This includes nishing the project on time, providing ptimal advice through trusted expertise and helping clients achieve greater protability in various ways. These are


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achievable if we do our role well. Doing well in our job not only makes us look successful, but also makes your supervisors successful, because you show that you are reliable, capable and industrious. Each individual in our team will w ill have dierent desires and wants for their career. The head of our group will certainly want to bring new clients to the company. We make his job easier by doing our part exceptionally well, whether it consist of building pitch books and nancial models in investment banking, for example. If we give them what they want, then we will certainly get what we want out of our career in the future, such as a promotion, salary raise or more important and bigger responsibilities for a new project. Our own wants as well as those from the t he people we work with should be aligned. Therefore, each party will gain from working together.

We are showing our colleagues, through our work ethic, that they can reach their fundamental desires. It is essentially helping them get what they want. As A s a result, we have an inuence on the success of our team members. In return, we, too, will get what we’re looking for out of our job, such as business relationships, relationships, referrals, advancement ad vancement in our career or bonuses to name a few.


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D.


Part 2: Networking and Part Building Relationships within the Company Be Interested in Other People Focus more on being genuinely interested in other people rather than trying try ing really hard to get other people intereste d in us. It makes a huge dierence when people actually enjoy being around us, especially if it’s our rst few days in the oce. The team operates best when everyone around us knows each other. Knowing the strengt hs and weaknesses of our coworkers can make the whole team work eectively and eciently, since the team can take advantage of each member’s unique abilities. Knowing who to speak to for guidance and assistance in certain aspects of our job will help us get through our t asks smoothly. So let’s let ’s get to know as many people in our company as we can and start building genuine, professional relationships with them.


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Showing interest and taking the time to get to know other people leads to making new friends and building camaraderie in the workplace. The outcome is a team that works well and has all members communicating in an open, honest and respec tful manner. Moreover, team members will feel a strong sense of belonging to the group, which further leads to a deep commitment to the group’s actions and decisions. Every day is an opportunity to get to meet new people, so always greet our co-workers with vigor and enthusiasm. Make a Good Impression Personal appearance matters when we’re interacting with our new or current colleagues. It’s the rst thing that they notice about us. How we carry ourselves through our attitude, posture and body language is very important, because it’s the rst point of contact. Always remember that action speaks louder than words. Before we greet others, let’s remind ourselves to smile. Avoid negative thinking that will aect our attitude towards talking to others. People can detect a negative attitude just by looking at a person’s facial expression and even hearing the tone of their voice. If this is the case, we could potentially have a negative eect toward their mood, which could ruin their day. That is why smiling when conversing is very important, when we’re trying to make a good impression to someone in the company. Smiling communicates that we are glad to see that person. In fact, action and feelings go together, so even if we’re not in the mood to smile, doing so anyway will tend to make us happy. Others will thank us for that, as a simple smile can be contagious. I t makes other people happy as well, and gives them a pleasant time meeting and talking to us. Be an Active Listener One of the most important skills to have is the ability to listen. Often times, we become very concerned about what we want to say next that we don’t take t ake the time to truly listen to the speaker. A bad listener will


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have a dicult time building relationships with his or her colleagues. So be a good listener, particularly when we are a new recruit to the company. We will spend a lot of time learning everything about our roles from others. Along the way, we will be introduced to many employees working in various departments of the rm, including ours. If we are new to virtually all of the processes and procedures, one of the best ways to learn is to listen to and watch watc h our senior colleagues train us. They come from years of experience, so it’s best to listen intently and carefully. Our rst few weeks will include new instructions and information. The last thing we want to happen is miss any crucial details that can potentially sabotage our performance in the company. When we show sincere interest in what the other person is saying, they, too, will nd us interesting. Encourage them to t alk more about themselves, especially their accomplishments, and they will nd us great conversationalists. Everyone has much to say about themselves, but often, there aren’t too many people out there, who are patient and sympathetic listeners. So be the person to make the other person feel heard and they will thank us for it.


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Active listening requires giving our full attention to the speaker. It involves genuine and obvious signs like making eye contact , nodding our head in agreement and asking questions for further clarication. We really have to concentrate on, engage in, and absorb what the other person is saying to us. Having Hav ing this valuable skill will help us reap the benets as stated below: Respect and Trust We earn the respect and trust of our colleagues, because we show that we are supportive and understanding. If there are any kinds of personal or work-related issues, they will be mitigated as each member becomes self-assured and comfortable in working out a solution with each other. Understand Issues Clearly and Formulate the Best Solutions With a better understanding of the issues in the company or from our peers, we can formulate an accurate and optimal solution. In a meeting, it’s easy for anyone to miss out on information when they let their mind wander.. When we’re asked to come up with a solution, we may oer a wander wrong or useless solution, because we have gaps in our knowledge. A situation like this can endanger our professional image and abilit y. We won’t come across as someone who works eciently and one with a sharp intellect. Make Other People Aware of their Importance Import ance and Value One of the best ways to develop professional relationship within the company is making others feel that t hat they belong in the group. Specically, make them feel important by giving them approval and recognition for their work. Always nd something nice to say about a person. By doing so, we are essentially highlighting their best qualities. Even though there are plenty of good things to say about a person, sadly, we don’t do it quite enough. Saying good things about a person helps motivate them to continue doing what they’re good at . It will even encourage them to improve on their weaknesses. This is because they know that good work and sincere eort are being recognized.


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Our colleagues sometimes can have a bad day, when they think that the boss is not aware of their hard work. But someone who works beside them every day clearly knows how much eort and time are being invested into a given task or project. We can be that person to instantly cheer up our coworker, who currently has low morale, by gi ving him or her an honest appreciation. Everyone we work with can potentially have an impact on our career. They can help advance us forward to become more knowledgeable and skillful in our job. Just being surrounded by intelligent and diligent people is both inspiring and inuential. They will surely have an inuence on the way we act and think. Our company believes in us after all; that’s why they gave us the opportunity to work there. So be thankful, and, when the right time comes, let the people we know how important they are to us.


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E.


Part 3: Networking and Building Relationships within the Company Respect the Opinions of Others When we disagree with someone, it’s easier to tell that person they’re at out wrong than try to hear out their entire point of view and explain why we think that person may be wrong. We often don’t take the time to examine why the other person thinks dierently from us, because we rmly assume, early on, that we are always right. If we are adamant about our ideas and opinions, chances are we won’t be open-minded for a challenge and consideration of opposing viewpoints. If we truly know the other person is wrong, try to avoid saying it directly. Doing so can make matters worse, as he or she may take it as an insult to his or her knowledge and intelligence. Being insensitive about the other person’s feelings can hurt our chances of building a professional relationship with that person. Remember that if we constantly tell a person they’re at out wrong, we can hurt that person’s pride and make them feel inferior. What’s even worse wor se is they will begin to resent us.


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A decent way to approach a situation is asking a follow-up question instead of making a rm, dismissive statement. For instance, try saying, “Why do you think that’s the best nancing option to pursue for our client? I thought otherwise. Though, I could be wrong. But if I am, I want to know why. Let’s look at the details.” The poor approach would be to say, “No, you’re absolutely wrong. That’s not how you deal with the client’s problem.” As we can see, there’s a big dierence with how we say things when we are in disagreement with someone. The rst example is the better approach, since we’re presenting ourselves as open-minded and fair. Rather than being contentious, our sta tement is disarming and still allows the other person to make their point. They will be more reasonable with our opposing view, because we can demonstrate that we’re willing to listen. So, next time we nd ourselves in a similar situation, remember to not threaten a person’s self-esteem. Let’s not directly attack their statements, because we’re only provoking them to strike back. Adjust our response, so that our ideas and opinions are welcomed and considered. Be Honest When You’re Wrong and Admit It Directly When we collaborate with our team members to share our ndings, opinions and ideas, other people may either agree or disagree with us. As mentioned earlier, we always have this intr insic feeling where we want to be right for most of the time. It gets us praise for our work and admiration from others. More specically, when we’re right, we look smart and very capable in front of our colleagues. The problem with this is sometimes we are afraid to make mistakes or just generally be wrong with anything. The perceived repercussion is that we would look incompetent and unintelligent. Even if we eventually believe that we are wrong and people hav e proven us wrong, we can ca n still have the urge to mask our wrongness or mistakes, because our


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egos are being bruised. Rather than directly admit that we are wrong, we go into defensive mode to protect ourselves from embarrassment and rebuke. Not immediately admitting we are wrong can only worsen the situation. We only hurt our work relationship with others. Furthermore, it prolongs solving the actual problem, since we now become focused on proving others wrong and try to dance around the situation. This often leads to nothing. The best thing to do is to quickly admit our mistakes. As long as we are sincere and humble about it, make an eort to learn from it and avoid doing it again in the future. Most of the time, people will have a forgiving attitude, because we are saying the things they intend or want to say about why we are wrong in the rst place. Next time we nd ourselves mishandling a particular task or activity at work, immediately point it out to our boss. Our boss and coworkers are more likely to trust us, since we’re showing that we are honest, responsible and diligent. We are willing to get things right the second time around. Always Be Friendly in Your Approach Approaching coworkers in a friendly manner is the best way to interact with them and achieve our objective with their help, instead of being upset, angry, aggressive or even arrogant. A peaceful dialogue will likely occur, when we aren’t harboring any negative feelings toward a person. In particular, if our objective is for the other person to agree with our way of thinking, then we must prevent ourselves from provoking the other person to ght back. A coworker may have upset us in the past . It could be that the t he person was too critical of our work or simply did not treat us with respect like everyone else. How we talk to or work with that person will surely be cold and antagonistic. Simply put, we just don’t like that person at all.


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However, maintaining an attitude like this for a long time will not be benecial for the progress of our work and advancement of our career. As much as possible, we want to be in good terms with everyone. What we should do is sit down with that person and discuss the issues through to have a better understanding of where we disagree. Don’t avoid any issues that can be xed,  xed, as most are xable. There’s T here’s a huge chance that the other person agrees more on many things with us and diers only on a few ones. So don’t avoid a person just because we don’t like them. Let’s get rid of our anger or frustration and replace it with a friendly, fr iendly, gentle and calm manner. This way, way, we’ll be able to shift the person’s perspective of us into a good light and convince them of the points we’re trying to make.

Just like how we would approach any of our friends, we also should greet our coworkers cheerfully. Start by exchanging pleasantries. Let’s ask about how the person’s person ’s day is going so far. Talk Talk about recent current events that’ll trigger continuous conversation. Learn about the other person’s interest or hobbies and try to build up on that. The purpose of this is to make the person comfortable in chatting and listening to us. The more we spend time with them, the more we get to truly know them and vice versa. So, once they feel positively about us, we can then introduce the more serious issues we want to go over with them. By being friendly in the t he beginning, we’ll have much more inuence in convincing the person to agree with us.


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