KNOW VALUATION AND FINANCIAL RATIOS FOR SERIES 66 EXAM

Up against the Series 66 Exam? Then be prepared for various economic questions such as Financial Ratios and Valuation Ratios, including debt-to-equity ratio, price to book, and price to sales, price earnings ratio compared to growth percentage, or PEG ratio. NASAA's new Series 66 Test Specifications lists these topics in Section I (A) (3 & 4). NASAA is thus telling us that these items could be on your Series 66 test.

Bob Eder in his Study for the Series 66 Exam covers Financial and Valuation Ratios. Here is a sample of Bob Eder's treatment:

"PEG Ratio                                                                              I(A)(4)

"This is the ratio of the price/earnings multiple for a company's common stock as divided by the company's growth rate of earnings per share expected for the coming period. Ideally, the growth percentage of EPS should equal or exceed the P/E multiple. For example, the common shares of XYZ Corp. have a P/E multiple of 10. If XYZ Corp. has an EPS growth rate of 12, this tells us that the price of XYZ common stock has room to grow."

" Price to Sales Ratio                                                                I(A)(4)

"Another valuation measurement ratio is price as compared to net sales or revenues. We need to express net sales on a per-share basis. The lower the ratio, the better value is the price of the common shares."

"EXAMPLE

"GDC Corp. has $1 million in net sales. It has 200,000 common shares outstanding. The price per share of its common stock is $45. Therefore, to find GDC Corp.’s price-to-sales ratio, divide the price per share of $45 by $5 per share of net sales ($1,000,000 net sales divided by 200,000 common shares). This equals nine to one. The lower the ratio, the better."

Here is the link to NASAA's Test Specifications for the Series 66 Exam. See the references to Financial Ratios and Valuation Ratios in NASAA's Series 66 Test Specifications, Section I (A) (3 & 4).

Study for the Series 66 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Series 66 book on Amazon.

For questions about Bob Eder's Series 66 manual, Study for the Series 66 Exam, or questions in general about the Series 66 Exam, or about Financial Ratios and Valuation Ratios, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.