Which financial modeling technique is commonly used in investment banking?

Discounted Cash Flow (DCF) analysis is a widely utilized financial modeling technique in investment banking because it provides a comprehensive method for estimating the intrinsic value of a company based on its expected future cash flows. This technique allows analysts to project the future cash flows that a company is anticipated to generate and then discount those cash flows back to their present value using a specific discount rate, typically reflecting the risk associated with those cash flows.

The DCF methodology is particularly valuable in investment banking as it helps professionals assess the viability of acquisitions, investments, or projects by giving a clearer view of the underlying financial performance, unrestricted by market fluctuations or comparable company valuations. This in-depth financial analysis helps bankers make informed recommendations during mergers, acquisitions, and other financial transactions.

Other methods, while important, typically serve as complementary tools. For instance, Comparable Company Analysis focuses on evaluating a company's valuation relative to peers, and Asset-Based Valuation centers on the value of a company’s tangible and intangible assets. Market Capitalization Modeling looks at the total market value of a company's outstanding shares. These methods offer valuable insights but do not delve into the anticipated future cash flows of a business in the same extensive and dynamic way that DCF analysis does.