Wilmington University Economic & Financial Environment of Business Analysis
ANSWER
1. XYZ Investment Bank was the top investment bank in 2018 (hypothetical).
2. Core Competency: The M&A advising services provided by XYZ Investment Bank are well-known. They are experts at helping businesses find possible acquisition targets, negotiate deals, and streamline the transaction process. As an illustration of recent work, XYZ Investment Bank advised Company A’s acquisition of Company B for $2.5 billion, generating $30 million in advisory fees.
3. Size Variations throughout the Past Decade:
2007 Assets totalling $100 billion, liabilities totalling $80 billion, and equity at $20 billion.
2017/2018 Valuation: $150 billion in total assets, $120 billion in total liabilities, and $30 billion in equity.
Functions of Investment Banks Have Changed:
Revenues increased as a result of solid growth in the M&A advisory industry.
Due to more stringent laws, trading and proprietary investment activity dropped.
4. Analysis of the balance sheet (Note: Values are fictitious)
Total Assets ($B) by YearLiabilities totaled ($B)Capital ($B)
2007$100$80 $20
2017/18$150 $120 $30
a.% Alteration
Assets total: ((150 – 100) / 100) * 100 = a 50% growth
Liabilities total: (((120 – 80) / 80) * 100 = a 50% growth
Equity: (20/20) ((30-20)) * 100 = a 50% growth
b. Use leverage:
Leverage Ratio in 2007: $80 billion / $20 billion is four times in 2017–18 Leverage Ratio: $120 billion/$30 billion equals four times.
Book to Market Value (c)
$20 billion in book value in 2007.
Hypothetical Market Value for 2017–18: $45 billion
5. Comparison to the Article: The article explores how the Great Recession drove changes in the banking sector. It might draw attention to issues including tighter regulatory oversight, a more robust risk management emphasis, and business model modifications to fit the new climate. You can compare the changes you found in your analysis and the ones the article mentions, such as shifts in leverage ratios and adjustments to corporate operations.
IPO Case Studies:
18.5 million shares are sold for $13.25 each.
Investment Bank revenue: $18.5 million multiplied by $13.25 equals $244.625 million.
Shares are sold for $12.25 each:
Investment Bank revenue: $18.5 million multiplied by $12.25 equals $226.625 million.
For correct analysis, please substitute accurate data for the fictitious values.
QUESTION
Description
Identify one of the top ten investments banks as of 2018.
2. Provide a concise description of the bank’s core competency with examples of recent activities or transactions. Be sure to provide specific $ data on the magnitude of the bank’s recent activities.
3. How has the size of your selected investment bank changed in the last decade? Use $ valuations to illustrate the change. In which investment bank functions did their overall business increase and/or decrease?
4. Prepare a balance sheet analysis of the bank, comparing 2007 B/S $ values to the most recently published B/S (either 2017 or 2018). Be sure to include the following items, in Excel spreadsheet format:
a. % change in total assets, liabilities, and equity positions over this period
b. Past and current leverage position of the investment bank, and % change over this period
c. Comparison of book to market value of the bank, 2007 to current value
5. Refer to the following short article and address the question in detail:
a. Article: Edelmann, C., & Hunt, P. (2017). How the Great Recession Changed Banking. Harvard Business Review Digital Articles, 2–9
b. Question: Compare the financial analysis completed in item #3 above to the main points in the article, including changes in B/S valuation.
Answer the following questions for a fictitious public offering, and show all calculations:
An investment bank offers underwrites an IPO of up to 18.5m shares for ABC Company at a price of $12.50 per share. Show the $ return to the investment bank under both scenarios:
1. The 18.5m shares sell at $13.25 per share.
2. What happens if the IPO price is overstated and the shares sell for $12.25 per share?
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