Investment banking is a type of banking that organizes large, complex financial transactions such as mergers or initial public offering (IPO) underwriting. These banks may raise money for companies in a variety of ways, including underwriting the issuance of new securities for a corporation, municipality, or other institution. They may manage a corporation’s IPO. Learn More

The term mergers and acquisitions (M&A) refers to the consolidation of companies or their major business assets through financial transactions between companies. A company may purchase and absorb another company outright, merge with it to create a new company, acquire some or all of its major assets, make a tender offer for its stock, or stage a hostile takeover. All are M&A activities. Learn More

The term “security” refers to a fungible, negotiable financial instrument that holds some type of monetary value. A security can represent ownership in a corporation in the form of stock, a creditor relationship with a governmental body or a corporation represented by owning that entity’s bond; or rights to ownership as represented by an option. Learn More

An equity security represents ownership interest held by shareholders in an entity (a company, partnership, or trust), realized in the form of shares of capital stock, which includes shares of both common and preferred stock. Learn More

A debt security represents borrowed money that must be repaid, with terms that stipulate the size of the loan, interest rate, and maturity or renewal date. Debt securities, which include government and corporate bonds, certificates of deposit (CDs), and collateralized securities (such as CDOs and CMOs), generally entitle their holder to the regular payment of interest and repayment of principal (regardless of the issuer’s performance), along with any other
stipulated contractual rights (which do not include voting rights). Learn More

Hybrid securities, as the name suggests, combine some of the characteristics of both debt and equity securities. Examples of hybrid securities include equity warrants (options issued by the company itself that give shareholders the right to purchase stock within a certain timeframe and at a specific price), convertible bonds (bonds that can be converted into shares of common stock in the issuing company).. Learn More

Before securities—like stocks, bonds, and notes—can be offered for sale to the public, they first must be registered with the Securities and Exchange Commission (SEC). Any stock that does not have an effective registration statement on file with the SEC is considered “unregistered.” Any security without a registration statement on file with the Securities and Exchange Commission (SEC) is considered “unregistered.” Learn More

In the U.S., the Securities and Exchange Commission (SEC) defines rules under which a company may make private offerings available in Regulation D. These rules include classifications for sophisticated and accredited investors. In Rule 506(b) of Regulation D, for example, private offerings are restricted to an unlimited number of accredited investors and a limited number of non-accredited sophisticated investors, defined as those investors with sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment. Learn More

Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party. Due diligence is a systematic way to analyze and mitigate risk from a business or investment decision. . Learn More

EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternate measure ofprofitability to net income. By including depreciation and amortization as well as taxes and debt payment costs, EBITDA attempts to represent the cash profit generated by the company’s operations. Learn More

Enterprise multiple, also known as the EV multiple, is a ratio used to determine the value of a company. The enterprise multiple, which is enterprise value divided by earnings before interest, taxes, depreciation, and amortization (EBITDA), looks at a company the way a potential acquirer would by considering the company’s debt. What’s considered a “good” or “bad” enterprise multiple will depend on the industry.Learn More

 An indication of interest is an underwriting expression showing a conditional, non-binding interest in buying a security that is currently in registration and awaiting approval by the Securities and Exchange Commission (SEC). The investor’s broker must provide the investor with a preliminary prospectus. Learn More

A letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. The letter outlines the chief terms of a prospective deal. Commonly used in major business transactions, LOIs are similar in content to term sheets. One major difference between the two, though, is that LOIs are presented in letter formats, while term sheets are listicle in nature. Learn More

An indication of interest (IOI) is an informal notice of an investor’s interest in purchasing or acquiring an asset. It is non-binding and less definitive than a letter of intent (LOI). The indication of interest includes value ranges and less specific transaction details. The IOI, coming before the LOI, begins the negotiation process. Learn More

A pre-money valuation refers to the value of a company before it goes public or receives other investments such as external funding or financing. Put simply, a company’s pre-money valuation is how much money it is worth before anything is invested into it. The term, which is also simply referred to as pre-money, is often used by venture capitalists and other investors who aren’t immediately involved in a company. This figure allows them to determine what their share in the company is, based on how much they invest.  Learn More

Post-money valuation is a company’s estimated worth after outside financing and/or capital injections are added to its balance sheet. Post-money valuation refers to the approximate market value given to a start-up after a round of financing from venture capitalists or angel investors have been completed. Valuations that are calculated before these funds are added are called pre-money valuations. Learn More

Financial analysts work for a variety of businesses, including investment banks. They are normally experts in markets, economics, accounting, and compliance. These are the ultimate support members on a financial team, spending their days poring over data and preparing reports for other, less analytical departments. Before a business makes a major financial or investment decision, management often consults its financial analysts to identify trends or run projections. Think of financial analysts as future-focused accountants with sophisticated modeling techniques. Learn More

Investment bankers are the movers and shakers in the institutional world. They play a key role in underwriting new issues of stocks or developing mergers and acquisitions (M&As) strategies. It’s up to the investment bankers to evaluate companies and time the market to make the biggest profits for their firms or clients. Life as an investment banker is characterized by uneven bursts of activity followed by times of calm or even boredom. Unlike financial analysts, investment bankers are directly responsible for generating revenues and pulling the trigger on investment decisions. Learn More

Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business’s management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics. Learn More

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk, or the general perils of investing, and expected return for assets, particularly stocks.
1 U.S. Department of Commerce, Commercial Law Development Program. “Financial Modeling: CAPM & WACC.”. Learn More

Discounted cash flow (DCF) refers to a valuation method that estimates the value of an investment using its expected future cash flows. DCF analysis attempts to determine the value of an investment today, based on projections of how much money that investment will generate in the future.Learn More

A company’s quality of earnings is revealed by dismissing any anomalies, accounting tricks, or one-time events that may skew the real bottom-line numbers on performance. Once these are removed, the earnings that are derived from higher sales or lower costs can be seen clearly. Even factors external to the company can affect an evaluation of the quality of earnings. For example, during periods of high inflation, quality of earnings is considered poor for many or most companies. Their sales figures are inflated, too. Learn More