Top 6 Investment Banking Books For Your Career Advancement

You know reading is very, very underrated. There are mainly two reasons why you read books. Books are the only things that build concentration. There is nothing else in which you can build concentration, which, you know, is very important in life when you are doing any work. Learning anything in college, school, or wherever you are learning something new. So you must read books for focus and concentration. The second very important thing is that books are the only thing that creates creativity and imagination. When you watch a movie or a TV serial, you see everything. Books help you do the same. They help to trigger the creativity and imagination in you. Non-Fiction and books on specific subjects help fortify your knowledge. Today, we will cover the top Investment Banking books to help you bolster your knowledge in the subject. 

Suppose you are an aspiring investment banker or want to improve at this gig. You must have heard about Leon Black. Yes! The same Leon Black, whom most consider the best in investment banking and whose net worth currently stands at 4.8 billion dollars. Imagine 4.8 billion dollars. What could you do with that much money? However, that’s not the point. The thing is, how many of you aspiring investment bankers want that bank balance? I guess all of you are right! How many of you make it that big? Not many! So, do we lack the luck factor or the best study material that adds that missing x-factor in our investment banking journey? I know little about luck, but I can help you with the material.

Top Investment Books to Help You Upskill

❖   Investment Banking Books #1 -: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by  Joshua Rosenbaum & Joshua Pearl.

It is the first on today’s list.

The book tells the pros and cons of the valuation in detail. Some of the financial model’s pros and cons are described below.

Now, look at each method’s pros and cons and start with the multiples approach. Here, among the big pros is that it’s quite intuitive. It’s easy to understand and quite relatively easy to do. It is now on the cons side. It isn’t easy to find similar companies to the one you’re trying to value. Let’s say I’m trying to value Amazon. For instance, there are not that many companies that are similar in size, geography, e-commerce market, and so on. Let’s say we want to compare it to Walmart.

For instance, another big retailer, Walmart, is not so focused on e-commerce. It’s more on physical stores, so finding good comparing companies is not easy. Moving on to the DCF, the main pro is that it’s independent of the market. I mentioned earlier it’s about the intrinsic value. So whatever the competitors are doing doesn’t matter. And that’s particularly good. For instance, most of your competitors will be down if you’re in a recession. So, if you use a multiple-space valuation, your company will also be very down.

For instance, using a DCF will be independent of how the market is doing. You have a core view of whatever your business is looking like. One big con of the DCF is that it’s hard to do. It’s very time-consuming. So, if you’ve ever been asked in an interview to evaluate a company and you have the choice of making a multiples approach versus a DCF.

You always want to pick the multiples approach because it will make your life much easier. Another big con here is the assumptions, and it’s heavily assumption-based. So that means that you might be a bit too optimistic about your company. You might be a bit too pessimistic about it. Based on that, you’re going to have a flawed valuation. I will say, though, that for a DCF, say in a professional setting, there’s usually going to be a lot of different case scenarios.

For instance, you’ll have a base case, which you normally expect the company to do. You’ll also have a best case, so a very optimistic scenario. You think it’s going to grow a lot more. You’re going to expand into new countries, and so on. And then you’ll have a worst-case scenario like, say, you get sued a couple of times. So, based on those three, you’ll derive three different valuations.

And based on your feelings, you will go with one or the other. Lastly, looking at the cost approach, the main pro is that it’s very easy. It’s quite easy to understand, but conversely, the costs are not easy to account for. Maybe it cost you a hundred thousand dollars to construct the house five years ago. But now the market’s been booming, so house construction is much more expensive.

They’re not as clear as you might expect. Another con of the cost approach has to do with government permits and specifically with regulation. For instance, maybe you had a warehouse that’s been there for 20 years, but now the new regulation says you can’t build anything in that area. So now you can’t have a replacement cost any more because you can’t build anything. That’s where the model might get flawed. And as you’ve seen in these pros and cons analyses, none of the three methods are perfect. They all have some flaws somewhere, so evaluation is mainly regarded as an art and a science.

This is one of those investment banking books that are great for beginners, intermediates as well as professionals.

❖   Investment Banking Books #2 – Investment Banking for Dummies

The book was written by Matthew Krantz & Robert Johnson. The book tells about the buyout options like LBO.Let’s dive into the concept and learn about LBO leverages. the acquisition of the company’s assets to obtain debt finance to buy the company instead of buying it with full equity.

If that means gibberish to you, let’s look at an example: John has a company ‘XYZ’ company that he has run successfully for 30 years. the company is quite stable and generates about 15 million in pre-tax revenue annually. after tax, which is, say, a third of his revenue, so minus 5 million of tax, his net revenue is 10 million a year. now, this company has other assets like factories and machinery, which are crucial to the business. John takes his salary every month and pays himself a nice dividend when he can. however, he is now retiring.

He’s worked hard all his life and wants to sell his business and effectively cash out for a lump sum. so he can enjoy the fruits of his hard work. a private equity firm approaches John and offers to buy the company for 100 million pounds. John is quite happy with this deal, as it is ten times his annual net revenue. and these guys, John and the ‘PE’ firm sit down to talk. now, the ‘PE’ firm could give John 100 million pounds worth of cash for the company. and if the business is making 10 million pounds a year, that’s essentially a ten-yield for the ‘PE’ firm.

However, that is a big chunk of cash for the ‘PE’ firm to give out. in one go, they go down the route of an LBO instead. The ‘PE’ firm puts down 10 million pounds of its own money in exchange for equity in the company, which is 10 million. then goes to a bank to borrow the rest, which is 90 million pounds. The bank will not give the ‘PE’ firm 90 million pounds unless that money is secured against something. and that something is the assets of ‘XYZ’ company.

This means that if the ‘PE’ firm defaults on its payments to the bank, the bank can come in and acquire the assets. the bank will also charge an interest rate of ten a year. This means that repayments of the bank each year are 10 of 90 million, which is 9 million. so hang on, you might be thinking now the ‘PE’ firm has to pay 9 million pounds a year of interest on the borrowed money. why would they do that? And that’s a really good question, but this is where the whole magic happens now. remember the ‘PE’ firm has only put down 10 million pounds of its own money and company ‘XYZ’ does around 15 million in turnover annually.

Now remember, nine million pounds a year goes back to paying the bank plus interest, leaving us with six million pounds. let’s say one-third again goes to the tax man, leaving us with a post-tax revenue of the business of four million pounds. now, four million pounds a year based on a 10 million pound investment because that’s how much they put down originally. They didn’t put down all of it is now giving a yield of 40 a year, which is much better than the ten scenario where the ‘PE’ firm had put down 100 cash and over time, as the debt position of the company decreases due to the repayments back to the bank. the ‘PE’ firm’s equity position in the business increases; before long, it owns 100 of ‘XYZ’ company.

Do you see how this benefits the ‘PE’ firm much more? They’ve put less money down, but they’re getting a better rate of return. so why do these sorts of deals get bad press? simply put, it’s because the debt is secured against the acquired company’s assets. if the ‘PE’ firm can’t keep up its high-interest repayments, the knock-on effect on the acquired company could result in layoffs, shutting down departments, unemployment, etc. In many cases, healthy companies that would have worked fine in the past and have worked for many years have suffered due to being on this end of the transaction.

So, looking at the same example, the business one year may only do 10 million in top-line turnover as opposed to 50 million pounds. remember, 9 million is repaid to the bank and the lender and is only left with one million pounds, of which tax needs to be paid. Suddenly, the net income of the business could be around seven hundred thousand pounds as opposed to the pre-leveraged buyout income of what would be around 6 million. this is in this scenario, and with 700,000, the business might be unable to reinvest that money.

It might not be able to do the things it wants to do. with the business to help it grow, and it’s sort of like a downward spiral which eventually leads to the stuff we spoke about before, like unemployment, shutting down of factories, assets being sold off, etc., to make ends meet basically a less than ideal situation so there you have it a very simplified explanation of leveraged buyouts.

This book is one of the top investment banking books you can read to strengthen your skills.

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❖  Investment Banking Books #3  –The Business of Venture Capital

Mahendra Ramsinghani wrote the book. The book tells about the concepts of venture capital. Let’s understand venture capital with an example. Imagine you have a brilliant idea for a new business or a fantastic invention that could change the world. You know it has the potential to succeed, but you need money to turn your idea into reality. That’s where Venture Capital comes in. Meet Robin, an engineer with an entrepreneurial spirit. He recently started working out at a gym and faces difficulties learning different exercises. He realized that others might be struggling, too. And this path was an idea in his mind.

Robin decided to build a virtual reality Fitness application that would provide users access to a vast library of exercises. He believed that his Innovative solution could transform the fitness industry. However, Robin encountered a common challenge faced by many entrepreneurs: a lack of funds to bring his idea to life. Banks hesitated to invest because Robin didn’t have the collateral or the great credit profile they typically require.

At that time, Robin came across the term Venture Capital. He visited one Venture Capital firm lying in the Wall Street region. There, he came across a person named Brooke. Brook is a venture capitalist working in a venture capital firm. He was impressed by Robin’s Innovative VR Fitness application idea.

He saw its potential to disrupt the fitness industry and believed in Robin’s region. Brooke invested in Robin’s startup, providing the 50 million dollars to turn his idea into reality. In return, Brook also took 50 ownership of Robin’s business idea. Now, let’s explore how Venture Capital works and what it means for the entrepreneur and investor.

Robin Venture Capital meant securing the funds needed to develop and launch his Fitness application to hire a team and market the product to produce profits. Whereas for Brooke, this is a riskier investment. He wants to ensure he makes heavy profits by guiding Robin through the investment process. Brook also provides valuable expertise, mentorship, and Industry connections to Robin.

Being a capitalist, Brooke provides everything to scale Robin’s business in return for his investment and support. He gets the percentage of ownership. In Robin’s startup, this ownership stake represents Brooke’s potential future returns. If the company grows and becomes successful, the ultimate goal for the entrepreneur and the venture capitalist is to achieve a successful exit.

This can occur through various means, such as acquisition by a larger company or an initial public offering where the startup goes public and lists its shares on the stock exchange. At this point, the venture capitalist can sell their ownership stake and realize their returns.

In summary, venture capital is a form of financing that enables entrepreneurs with innovative ideas and high growth potential to access the funds needed to bring their region to life. Venture capitalists invest in early-stage companies, taking on higher risk in exchange for potential significant returns.

This partnership between entrepreneurs and investors feels Innovation drives economic growth and shapes Industries for a better future. So the next time you hear about a groundbreaking startup or an entrepreneur turning their ideas into reality, you’ll understand the pivotal role of venture capital in making those dreams come true.

❖  Investment Banking Books #4 – Financial Modeling & Valuation: A Practical Guide to Investment Banking and Private Equity

Next in our list of the top investment banking books is Financial Modeling and valuation written by Paul Pignataro. The book tells about the financial models. It discusses a step-by-step approach on how to learn the financial model. Step one is the basic Financial concept. Before diving into Financial Modeling, ensure you have a good understanding of financial Concepts such as financial statements, income statements, balance sheets, cash flow statements, time value of money concepts, and key accounting ratios: say, debt turnover ratios, credit turnover ratios, turnover ratios coverage ratios, Etc.

Step two is to understand how to read and analyze financial statements. They are the foundation of financial modelling. Learn how these three statements are interconnected.

Step three: understand the cost driver and revenue driver of the business for which you want to prepare the financial model. An example of Revenue drivers is, say, you want to estimate revenue for the Telecom company. So, what would be the Revenue driver here? The revenue driver would be growth in the number of subscribers rate Etc.

Cost drivers: what are the direct and indirect costs required in manufacturing products and delivering services? The cost of goods sold, salaries sold, general marketing expenses, admin cost, and other costs required to earn revenue. Step four is to build a strong foundation in Excel interlinking of the sales. Basic and advanced Excel formulas say if statement V lookup creation of drop-down function, sensitivity analysis goal seek.

Step five is to start with putting historical financial data of the business in Excel, interlinking all information coming from the statement. Make your model dynamic, say if you’re linking cash balance in the balance sheet rather than hardcoding. This number is linked from the cash flow statement step six projection of future numbers in line. With the historical financial statements, project each line item for the future by estimating the growth Etc.

The first and most important thing to projecting any financial model is revenue. e so do detailed projections of revenue using revenue driver. The cost comes, and then cash flow statements and balance sheets. In the process of projection of these three statements, you would be required to prepare some key schedule: say, depreciation mutation schedule, debt schedule, Etc.

Next is the preparation of the output link key. The numbers to the output tab from the projected statement depend upon what output you require for linking financial data from the projected statement. To calculate the project rate, you must first calculate free cash flows. And to calculate free cash flows, you’re supposed to link operating profits with working capital and change depreciation expenses.

All these numbers will come from the projected financial statements. Step eight calculates the required output, say IR and NPV, Etc. Step nine: run sensitivity analysis on the final output to see how your output is changing. With the changes in the key assumption, step ten, and the most important step to practice is the practice of financial modelling on different companies.

❖   Investment Banking Books # 5 –  Investment Banking Explained: An Insider’s Guide to the Industry

Michael Fleuriet wrote the book. The book provides an in-depth view of the intermediaries of investment banks like hedge fund managers, brokers, and traders. It also elaborately explains banking industry-related terms and risk-managing approaches.

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❖  Investment Banking Books #6 – Investment Banks, Hedge Funds, and Private Equity

David Stowell wrote the book. The book explains in detail what is a hedge fund. Next time you hear hedge funds think of hedge as protect funds or money. That’s what they were meant to do back when they first got created. But as time went on, hedge funds got more and more risky.

They started taking bets in both directions of the market. They started betting on companies to fail, and people started losing a lot of money because they were taking outrageous risks. And so hedge funds started getting a bad name, and so that protecting of money kind of went out the window. Hedge funds take money from clients, wealthy individuals, companies, corporate pension funds, whatever it might be, from clients.

And they invest that in the financial markets, but what’s important to know about hedge funds is that they take a high level of risk. So that means big returns, so big profits, or it can mean huge losses, so that’s the risk you take when investing with hedge funds. So, one thing to know is that they can take all these high levels of risk because they’re not as regulated as other parts of the financial markets. And the average person isn’t allowed or can’t invest as much with hedge funds.

You have to be a certified investment professional. So, you have to be considered officially an investor to invest with hedge funds because you need a certain understanding to know what you’re getting yourself. A very important part of hedge funds is that you need to be aware that they use a lot of leverage. What is leverage? Leverage is multiplying or magnifying your trades by taking on debt. So you’re borrowing money that isn’t yours and using that to invest in the market to get more returns.

It is one of the best investment books for beginners and advanced students.

Although investment banking books are a wonderful source of information, reading these books won’t make you an all-round investment banker. For that, you need robust training. I am naming a few institutes that provide training in investment banking courses in India. However do give these investment banking books a read to understand the basics and advanced concepts well. 

FAQs related to Investment banking books

1.     Does investment banking have a future?

Investment Banking has a great future because it is a secure job profile. You will work with big investment firms where you will get handsome salaries.

2.     Does investment banking require coding?

No, Investment banking doesn’t require any coding experience. It is a trading and business transaction-related job.

3.     Can investment banks take deposits?

No, Investment bank doesn’t take deposits. A commercial bank always accepts deposits from the clients.

Concluding thoughts on Investment Banking books. 

There are various books on Investment banking, although most cover the same type of chapters. Therefore you can take only one book for the reference of the subject. But books are useless for the future because the subject involves various up-to-date concepts in the market, which a book usually won’t cover. However, books are good resources of knowledge. Investment banking courses require hands-on training in this subject with a certificate.