Every now and then you may come across some obscure Series 86 Exam questions. Taking any exam you want to be prepared for what’s expected and what you didn’t realize you should expect. In today’s post, we discuss the latter.
Obscure Series 86 Questions
Our bread and butter at Professional Exam Tutoring is the Series 86 Exam. We have taught exam prep for this FINRA exam for about a decade.
Based on our own experience, plus the feedback of many others, we thought it might be helpful to share some of the questions we get from students expressing confusion around certain topics.
For starters, we get many students asking us about economic value added (or EVA).
The general basis for the EVA concept is a cost benefit analysis.
The formula you might need to use is:
EVA = NOPAT – (WACC x Invested Capital)
There are other variations of this, but they all essentially have the same idea.
Though not emphasized super heavily in the curriculum, this is a fairly straightforward calculation once you get the hang of it. First calculate EBIT then remove taxes to get NOPAT. Identify the WACC and invested capital (debt + equity), and solve.
Other curve balls that might be thrown at you include formulas that have no specific name. Occasionally such formulas may only be derived by interpreting the wording of a question.
Curve Balls
For example, you could be asked to calculate accounts payable as a percentage of revenue. In formulaic terms, this would be interpreted as:
Accounts Payable/Revenue = Accounts Payable as a Percentage of Sales
There is no common financial ratio name for this formula. You would simply have to put it together based on the description.
If asked to interpret this formula, it’s worth realizing the key relationship with cash flow. There is a positive relationship between accounts payable and cash flow. We would assume that the higher this ratio, the better for the company since it implies better cash flow.
In short, the above are a few potential questions that can be asked, but are little covered in the curriculum. For more help, or additional tips, feel free to reach out. Good luck!