What the Heck is EBITDA? My Experience in Investment Banking and What It Means

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. When I first crossed paths with the career of investment banking, I didn’t even know what half of EBITDA meant. I thought investment banking was a fun little gig where people traded stocks. Looking back now, it is almost surreal that I was able to spend two weeks in the investment banking department of a financial corporation in Shanghai, China.

What is investment banking? Investment banking, put simply, is organizing deals for a massive fee. Investment banks underwrite IPOs, facilitate M&As, raise money, and provide various other services. Investment bankers are the best at what they do and almost control the world of investing. Some famous investment banks include Goldman Sachs, JP Morgan Chase, and Morgan Stanley.

What was my experience? Although I couldn't spend two weeks at Goldman Sachs (what a surprise, they don't hire high schoolers), I did get a good taste of what it is like to be an investment banker. I worked on the M&A team of the investment banking department. Most of my work involved translating documents used in M&A deals and collaborating with the team to share ideas and opinions. Mergers and acquisitions are very complex, and I could not fully understand everything. Variables such as shareholders, conversion/transfer of company shares, loans used, and EBITDA all contributed to what the bankers thought or advised about the deal. During meetings, the complexity of the deals often catches up, making the meetings hours long. There are a large number of financial models in Excel and PowerPoint. Eight times out of ten, there will likely be an Excel or PowerPoint file open on the bankers' computers. The infamous 100-hour work week is not as prominent in Shanghai as in other countries, but bankers often work 60–70+ hours. There were other times when the Senior Associates or Vice President (sometimes even managing directors) would go to meet clients. I had the opportunity to meet a client with the Vice President. As investment banking is a front office job, networking and meeting clients' needs are crucial. I had the opportunity to experience the two-hour lunch break, a common practice in Asian countries, where executives often have client lunches and meetings.

What does this mean? Investment banking is a challenging and competitive job. Not everyone is going to thrive in it, and many burn out from 100+ hour work weeks. The high compensation and prestige should not be the driving factor in choosing this career. Frankly, high school is way too early to set your sights on investment banking. Although recruiting is highly competitive, and I understand that people start preparing in high school, investment banking requires genuine passion and hard work, not just money and prestige. Becoming financially literate, investing, and understanding finance are the most important skills for high schoolers right now. Finance is a vast industry with many options. Choosing an enjoyable career is the top priority, but if investment banking is your thing, choose it.

Sources: https://www.investopedia.com/terms/i/investment-banking.asp

Underwriting: A Process through which an individual or institution takes a financial risk for a fee. Risks involve loans, insurance, or investments. https://www.investopedia.com/terms/u/underwriting.asp

IPO: Stands for initial public offering. The first time

a private company sells shares of its stock to the public on a stock exchange. https://www.investopedia.com/terms/i/ipo.asp

M&A: Consolidation of companies or assets through various types of financial transactions such as mergers, acquisitions, consolidations, etc. https://www.investopedia.com/terms/m/mergersandacquisitions.asp

Investment banking hierarchy (least to greatest): Analyst – Associate – Senior Associate – Vice President – Managing Director.