The most important role of an investment banker is to value a company. Apart from all other responsibilities which they have, the biggest reason investment bankers are paid so much money and are difficult to get is because they are experts at valuing an asset or valuing a company.
Nov 01 2013 11:02 AM
Now, there are various reasons for which investment bankers value your company. The first reason is for doing a merger or an acquisition, where an investment banker is hired to sell a company or buy another company and for this purpose the investment banker has to perform valuation to understand how much to pay for a acquiring company or how much to quote for a company that he or she is selling.
The second reason investment bankers are hired for valuation is to perform an IPO or an initial public offering. This is where a company is listed on a public stock exchange for the first time so the public can buy and sell a company shares. An investment banker has to value a company in this scenario using discounted cash flow comparable trading or comparable acquisition to better understand how much to price a share at.
The third reason an investment banker is hired to do valuation is to help a company raise capital. IPO is just one way to raise capital; companies could raise capital through private equity, venture capital debt, convertible debt, securitized debt, all kinds of financial instruments can be used to raise money and that investment banker is hired to help a company understand the right capital structure for continuous operations of the company.