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Capital Structure

Firms can choose to finance themselves with a number of securities: shares, bonds, preferred shares, convertible bonds, etc. These securities can be classified into two broad categories, debt and equity, and each comes with its own cost. Capital structure describes the way a firm finances itself. Capital structure can be represented

Value Capture Model

Porter's five forces, founded in the 1980's, is the classical framework used to understand and analyze competitive forces in an industry. In the 1990's, a new framework was formed, the Value Capture Model. The Value Capture Model extends on previous frameworks in two ways. One, it formally describes competition as a

Statistical Inference and Hypothesis Testing

Whenever we observe data, we are usually observing one or a few samples from a much larger population. For example, if we are looking at daily stock market returns for AAPL for last year, we are looking at only a small portion of the overall daily returns. More often than

Multivariate Regression and Interpreting Regression Results

Simple linear regression (univariate regression) is an important tool for understanding relationships between quantitative data, but it has its limitations. One obvious deficiency is the constraint of one independent variable, limiting models to one factor, such as the effect of the systematic risk of a stock on its expected returns.

Understanding Porter’s Five Forces

Porter's five forces is the most famous concept in strategy, and is a part of every business undergrad/MBA curriculum. The concept is a succinct yet brilliant way of describing the competitive forces in an industry. For banking, it is an immensely useful framework for industry analysis, a key part of

Modern Portfolio Theory and the Capital Allocation Line

In our Capital Asset Pricing Model post, we discussed risk and return for stocks. We also discussed the use of the relationship to value stocks, by interpolating what the return for a stock should be given a certain level of risk. We will build on these concepts and discuss how

Accounting Estimates: Managing Earnings

In our other accounting estimates articles, we talked about the discretion that management has in the income statement and the balance sheet. In this article, we will dive deeper into the incentives that management may have to manage these estimates. What is Earnings Management? Despite the discretionary nature of some of the

M&A Deal Case Study

M&A Transaction Case Studies are commonly seen in case competitions, and often in actual investment banking work. Every time a pertinent transaction in the value range that is relevant to the investment banking group happens, the analyst will prepare a case study for distribution to the broader group. They are

Introduction to Enterprise Value and Valuation

It has become apparent to us that our website assumes a level of knowledge which may make it difficult for people newly interested in investment banking to jump into our interview section. So before someone goes from 0 to 60 and is asked about more advanced valuation concepts, we are going

Accounting Estimates: Recognizing Assets

In our previous articles, we discussed the impact that accounting estimates have on the income statement. However, it is not just the income statement that is subject to estimates, the balance sheet is as well. Balance sheet items will affect efficiency ratios (asset turnover), solvency ratios (debt to equity), and