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Treasury Shares

Treasury shares are the portion of shares that a company keeps in their own treasury. Treasury stock may have come from a repurchase or buyback from shareholders; or it may have never been issued to the public in the first place. These shares don't pay dividends, have no voting rights, and should not be included in shares outstanding calculations.

Treasury stock is often created when shares of a company are initially issued. In this case, not all shares are issued to the public, as some are kept in the company’s treasury to be used to create extra cash should it be needed. Another reason may be to keep a controlling interest within the treasury to help ward off hostile takeovers.

Alternatively, treasury stock can be created when a company does a share buyback and purchases its shares on the open market. This can be advantageous to shareholders because it lowers the number of shares outstanding. However, not all buybacks are a good thing. For example, if a company merely buys stock to improve financial ratios such as EPS or P/E, then the buyback is detrimental to the shareholders, and it is done without the shareholders' best interests in mind

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Enterprise Value Vs Market Capitalization

Enterprise Value (“EV”) is the value of the company as of today, the present. It is calculated as Market Capitalization plus debt, minority interests and preferred shares, minus total cash and cash equivalents.  

Market Capitalization (“Market Cap”) is total market value of all of a company's outstanding shares (Outstanding Shares are stocks currently held by investors, including restricted shares owned by the company's officers and insiders, as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock). Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share.

 EV differs significantly from simple market capitalization in several ways, and many consider it to be a more accurate representation of a firm's value.To understand this consider a large multinational Chemical company acquiring another small chemical company. The acquirer will have to take the small company's debt and shall pocket its cash. The value of a firm's debt, for example, would need to be paid by the buyer when taking over a company, thus EV provides a much more accurate takeover valuation because it includes debt in its value calculation.

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EV/Sales and its Importance

A Ratio (“EV/Sales multiple”) which compares the enterprise value of a company to the company's sales. EV/sales gives investors an idea of how much it costs to buy the company's sales. This measure is an expansion of the price-to-sales valuation (P/E ratio), which uses market capitalization instead of enterprise value. EV/sales is seen as more accurate because market capitalization does not take into account the amount of debt a company has, which needs to be paid back at some point. Generally the lower the EV/sales the more attractive or undervalued the company is believed to be.

EV/Sales = (Market Cap + Debt + Minority Interest + Preferred Shares - Cash and Cash Equivalents)/Annual Sales

The EV/sales measure can be negative when the cash in the company is more than the market capitalization and debt structure, signaling that the company can essentially be bought with its own cash.
The EV/sales measure can be slightly deceiving: a high EV/Sales is not always a bad thing as it can be a sign that investors believe the future sales will greatly increase. A lower EV/sales can signal that the future sales prospects are not very attractive. It is important to compare the measure to that of other companies in the industry (i.e. the peer groups), and to look deeper into the company you are analyzing.

Importance of EV/Sales in Mergers and Acquisitions:

In a M&A deal the seller will always try his best to value the company at as high of a price as possible, while the buyer will try to get the lowest price that he can.  To work a sort of a compromise between the two there are
many legitimate ways to value companies. The most common method is to look at comparable companies in an industry using comparative ratios: 

The following are two examples of the many comparative metrics on which acquiring companies may base their offers:

•  Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring company makes an offer that is a multiple of the earnings of the target company. Looking at the P/E for all the stocks within the same industry group will give the acquiring company good guidance for what the target's P/E multiple should be. 
• Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring company makes an offer as a multiple of the revenues, again, while being aware of the PIE ratio of other companies in the industry. 

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Investment Banking??...

To be short and precise it's all about M&A (Mergers & Acquisitions) activities which takes place around the globe. For M&A to happen there is ample amount of work which needs to be done......Analysis of Financial Statements, Preparation and Analysis of Public Information Books, Share Price Graphs, Company Comparables, Company Profiles, Market Overviews, Case Studies, Debt Comparables and Benchmarking

Last week alone deals worth $90 billion dollars have taken place...

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Why a company wants to acquire another company?

There are a variety of reasons for an acquisition:

• The buyer’s growth has stalled and wants to satisfy the need of growth expectations of the customers as a whole
• The buyer may expect high synergies on acquisition
• The target firm may have reached a stage, where its financial valuation have reached a very low value i. e. low Enterprise Value

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HSBC plans buildup of investment banking in India

HSBC Holdings plans to beef up its investment banking operations in India, leveraging its balance sheet to help it grow in a deal-making market that is both fast-growing and fiercely competitive.

HSBC aims to add about a dozen staff to its roughly 80-strong investment banking unit in India over the next year, building both its M&A advisory and equity capital markets businesses.

After a lull during the global financial crisis, investment banks have resumed hiring in India as dealmaking has recovered even as underwriting fees remain notoriously thin, especially on government deals that will account for a sizeable chunk of the roughly $30 billion in equity issuance expected this year.

Indian firms, which escaped the worst of the global crisis, have returned to their acquisitive ways, completing nearly $26 billion worth of deals this year, headlined by Bharti Airtel (BHARTIARTL.BO : 316.85 -5.2)'s $9 billion acquisition of the African operations of Kuwait's Zain.

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Investment Banking Hierarchy

Analyst

This is the lowest form of life in I-Banking. Now to distinguish between the Analysts, we have classification among Analysts as Analyst 1, Analyst 2 and Analyst 3. The numeric associated with term Analyst signifies the amount of years spent in Investment Banking. From here the Analyst can transform into an Associate or jump ship and go to work for one of the sorry companies the analyst has been working for. The third is to move to a equity house or a hedge fund and the last thing what he can do is to be called a dumbass, i e. to get fired.

General Role:

Analysts are typically men and women directly out of undergraduate institutions who join an investment bank for a two-year program.  Top performing Analysts are often offered the chance to stay for a third year, and the most successful Analysts can be promoted after three years to the Associate.

Being at the bottom of I-Banking ladder they generally perform three types of work: Analysis (which till date I am unable to figure out what analysis I have been doing till now), Presentation and Administrative roles.

Pretty much anything done in Excel is considered “analytical work.”  Examples include entering historic company data from public documents, analyzing such data for valuation purposes and projecting a company’s financial statements (”modeling”). Presentation work involves the putting together and writing of various PowerPoint presentations including marketing documents (”Pitches” or “Pitchbooks”) and documents for live transactions (for example, a presentation to management or the Board of Directors).   These PowerPoint presentations get printed in color and are bound with professional looking covers for meetings with clients and prospective clients.   Administrative work, being the third type of task, involves things like scheduling and setting up conference calls and meetings, making travel arrangements and keeping a list of dealteam members updated.

Associate

The next in line are the Associates. They are the ones who don't spare a chance to point mistakes in the work that an Analyst has done. The good associate will not give a damn, whereas the bad associate always will. All associates are bad associates. Associates are always keen to get on the good side of important people. To be etymological, they are sycophants.

General Role:

Associates are typically either folks directly out of top MBA programs or Analysts that have been promoted.  Typically, bankers will be at the Associate level for three and a half years before they are promoted to Vice President.  Associates are also categorized into class years (i.e. First Years, Second Years and Third Years).

Associates main role is to check the Analysts work and point out the mistakes and most often they try their level best to humiliate or degrade the  Analysts.....Show of strength!!

A typical conversation between an Analyst and an Associate is somewhat like the following:

Analyst:  “I’m finished with the valuation”

Associate: “Is it right?”

Analyst:  “I think so”

Associate:  “Well, check it again and come back when you are SURE it is right. Also check each and every value and match it with the relevant sources- Bloomberg, FactSet and the company filings, website & research reports” 

In addition to overseeing the Analyst’s work, the Associate will often help write the text for the presentations as well as do much of the modeling work.  On live transactions, the Associate, while also playing an administrative role with the Analyst, will likely have significant ongoing interaction with the client and with the opposing investment bank (i.e. the buyer’s advisor if the Associate is on a sell-side deal)

Vice President

The primary role of the Vice President is to be the “project manager,” whether for marketing activities or on a transaction.  It is the VP that typically decides the structure (usually the Table of Contents or “TOC”) of the presentation (e.g. a pitchbook).  On live engagements, the VP is typically the banker “running the deal.”  The VP must manage the client, manage the senior bankers and manage the Analysts and Associates that are actually doing the work.  It is often at the VP level that bankers begin to form valuable relationships with clients.  Depending on the individual and also the bank, some VPs will start to play a role in client development and marketing.

Senior Vice President

Depending on the person (and sometimes the bank), the Director or SVP may either act more like a Managing Director (play a high level client development role) or more like the VP (play a project manager role).  Sometimes, the Director/SVP’s role will depend also on the specific situation and/or other dealteam members.  Ultimately, for Director/SVPs to be promoted to Managing Director, they will have to demonstrate that they can form client relationships and have the ability to market and to bring in new business.

Director Managing Director

As the senior level banker, the role of the Managing Director (”MD”) is mostly one of client development.  The MD will likely be the one with the senior level company relationships (CEO, CFO, head of Corporate Development) and is typically responsible for spearheading marketing efforts.  On a live transaction, the MD often plays only a minor role, getting involved when difficulties arise in the deal and during high level negotiations.

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