Category Archives: CFA

More thoughts on GI Bill for Graduate School

One semester down and I’ve been already received $47,387.35 in benefits. The GI Bill rocks. So for all of you academy grads out there who are deciding whether or not to stay in for an extra few months to get 35%, DO it.

When you see the 36 months advertised by the GI Bill it is actually more like 4 years because you are not in school during the whole calendar year. This means that for those of you who are interested in doing a 3-4 year joint-degree, you can max out the GI Bill. Although I don’t advise going down that route (basically the JD-MBA).

Generally speaking, most of you are looking at the traditional 2-year full-time MBA program and I’m a huge advocate of the traditional 2-year full-time MBA program. You will exhaust roughly half of your GI Bill on this and I think you should put the remaining 18 months to good use.

Since you have so much time to use the GI Bill, I personally would consider going for a one-year mid-career policy degree (MPA/MPP) after a few years of working experience, if my career permits a one-year break. That would still leave a good 10 months of GI Bill left, assuming 8 months in an academic year.

What to do with the remaining 8 months? Don’t forget about the certification, licensing, and national exams! The Chartered Financial Analyst program is the most expensive to attempt (and possibly the hardest to pass) so I think it is great that the GI Bill gives you some cushion to try.

I read all over the place about the supposed “$1,460 = 1 month” equation in terms of how much benefit the tests will reduce, i.e. if your test costs exactly $1,460, it will remove 1 month of benefits from your 36 total. However, I haven’t actually found anything official from the VA that states that yet, so I’m going to submit a reimbursement in the next few weeks for the CFA and the GMAT and see how much benefits it reduces.

Reminder and Update: Citi Pre-MBA Fellowship, deadline is Friday, June 15, 2012

Citi Pre-MBA Fellowship (Veterans): The deadline on the website says May 30, but I have received emails from business schools and other websites saying Friday, June 15, 2012.

Just received word from the Credit Suisse about being invited to their MBA Military Boot Camp, so that’s good news. Took the CFA last Saturday and I’m tempted to just throw all my books away because if I don’t get it this time, I’m not planning on trying again. My goal was to get a basic foundation of finance and I think the participation in the CFA program gives you that. Getting the charter is certainly a personal as well as professional plus, but at this point, I’m not sure if I’ll be able to commit to at least two more years of intense studying – if I even pass the first test.

In other news, I’ve been working on a project in Charlotte and I’ve very surprised how beautiful and fun the city as (at least where my hotel is at). If you ever stop by…check out the mechanical bull at the Whisky River.


Done with the GMAT (700). CFA, you’re next!

Nothing feels better than chucking your CFA in the trash (recycling bin of course). I was aiming for a 720 but I got a 700, so no complaints here as I’ve broken the “elusive 700 barrier” that MBA programs say they don’t care about but they obviously do. The only bad news is that this is only a minor increase from my 680 from 2 years ago, however I did dramatically increase my quant section, which was weak. I’ll send the score along with a career update to my waitlisted schools and see how it goes.


I must admit that I did meet the most incompetent test center administrator today. I was the tenth person to show up at 7:40 AM for a 8:00 AM scheduled exam. I didn’t get in until 8:30 AM because the administrator didn’t know how to use the camera to take our pictures. Wow. And the guy sitting next to me waiting had the craziest case of sniffles – it was kind of gross. He kept sniffing like my dog. Anyways. One thing I regret not practicing enough is time management on the quant section, I basically guessed the last 4 questions and if I managed my time better, I had a good shot at 720 or above. On the verbal, I had 25 minutes left at the end which meant I could probably do better and didn’t have to rush through the early part. I had so much time left for the last 10 questions, I literally played out every scenario in my mind and I think that helped me.


I also want to mention that I completely skipped the writing section since I’m a published writer and the MBA programs know that already. So in my particular section, I didn’t need the writing section to calm my nerves or to expend unnecessary brain power on something that is kind of funny if you think about it – a computer grading a writing assessment. You get a 8 minute break between sections but I felt pretty good about everything and took 2 minutes to get over the fact that I guessed the last 4 on the quant and went straight at the verbal.


I took a Veritas prep course for $1,500+ and I have to say that the money was pretty well justified (even if it was only for a 20 point increase) just because of gaining a better philosophy for test taking. Furthermore, I could have just gotten lucky the first time (680) as I wasn’t really studying in Afghanistan.


I’ll have more reflections after the CFA tomorrow. Speaking of the CFA, for the past week, I’ve been reading the Schweser tri-fold when I wake up and before I sleep. It is a great overview of everything that is covered on the CFA exam

Final Preparations for the GMAT/CFA

About five months ago I decided to do what I thought was a foolish thing to do: take the GMAT and CFA  back to back. Five months later, I can confirm that that was a stupid mistake. It’s kind of like saying I figured out that the stove is hot after touching it. One’s brain has only so much capacity and there isn’t much overlap between both tests besides elementary statistics, and the GMAT doesn’t even have that much if any.

Anyways, as we enter the home stretch, I just want to rehash what to do and more importantly, what not to do during the last week. The most important fact for both tests is that the studying should be done by now. Cramming at this point can only have minimal success, unless you go to a week-long boot camp or something.

For the GMAT, the four things that you could improve is:

1) Fundamentals: Right triangles, inscribed angles, things that you will forget after you take the GMAT because nobody uses it in real life

2) GMAT-specific strategy: No other tests have data sufficiency type questions

3) Anxiety: GMAT is the only computer adaptive test that I know of – which means if you are doing well, you should be feeling pretty bad as the questions get harder

4) Dealing with complexity: Take simple tasks/questions and obfuscate them with words. How else are you going to make simple algebra and grammar challenging?

For the CFA, I recommend you just taking the mock exam and studying every question you get wrong. What I noticed is that every question I got wrong on this mock exam was the same type of question I got wrong on the last CFA exam, which means I didn’t focus on my weak areas.

I would continue to do practice questions for both exam up until the test day, similar to warming up your body before a marathon, you can still run a little a few days before.

Good luck everyone…

42 Days of Trading and Potty Training Success

I don’t know why it never occurred to me but a great way to study for the CFA (or learn about finance) is to just start trading. Reading financial statements in the CFA textbook really puts me to sleep, but I start to care about actual financial statements when my money is on the line. My whole spreadsheet is too wide to paste here, but I have another column that converts holding period return into effective annual rate. This is important so you can compare apples to apples, as you could have a 1-day holding period return that is the same as a 10-year holding period return. This is a rather simple topic in the QM section of the CFA which I always forget…but not anymore.

As you can see, most of my gains have been from options and unsurprisingly, I have scored pretty high on the derivatives section as I read through the CFA materials. Two other important columns I have are my thoughts going into the trade and lessons learned getting out of the trade. I was pretty brutally honest with myself and I think it has been helping me maintain discipline through all of this. I never think I’m God’s gift to trading, most of this is probably beginner’s luck. For 42 days of trading, I have made $5,392.58 (off of an initial investment of $10,000) with an annual rate of return of 15,693,016,289,017,900,000,000,000,000%. This number will obviously go down as I take more losses and when I start business school, I won’t have this much time to read news and trade during the day.

If I’m still this successful 3 months in, 6 months in, and beyond, I might consider a career in sales and trading. Good news is that I just got a mentor who works as a Managing Director in Equities Trading at an investment bank through the American Corporate Partners (ACP) program, which I spoke about before. They setup veterans with mid to senior level executives in industries that veterans might be interested in. I’ll be sure to pick his brain about this topic as well.

In other news, my daughter is officially potty trained- I’m pretty damn excited about that.

Trade # Open Price Quantity Original Open Date Security Sell Price Close Date Gain/Loss HPR
1 $1.15 20.00 $2,340.00 4/3/2012 PUT GROUPON INC CL A $10 EXP 10/20/12 $2.20 4/17/2012 2019.9 86.32%
2 $0.50 20.00 $1,040.00 4/10/2012 PUT ZYNGA INC $8 EXP 09/22/12 $0.85 4/18/2012 619.96 59.61%
3 $17.81 150.00 $2,678.50 4/17/2012 VXX $18.25 5/14/2012 $51.93 1.94%
4 $0.95 20.00 $1,940.00 4/18/2012 PUT BEST BUY COMPANY $18 EXP 09/22/12 $1.15 5/7/2012 319.94 16.49%
5 $0.95 20.00 $1,940.00 4/19/2012 PUT RESEARCH IN MOTION $10 EXP 12/22/12LTD $1.25 5/3/2012 519.94 26.80%
6 $0.40 40.00 $1,640.00 4/26/2012 CALL GROUPON INC CL A $17 EXP 07/21/12 $0.40 5/14/2012 -$100.04 -6.10%
7 $1.00 20.00 $2,040.00 4/26/2012 PUT AOL INC $20 EXP 01/19/13 $1.30 5/7/2012 519.94 25.49%
8 $10.75 100.00 $1,082.00 5/2/2012 GRPN $14.89 5/14/2012 $403.50 37.29%
9 $8.90 100.00 $897.00 5/2/2012 ZNGA        
10 $13.50 100.00 $1,357.00 5/3/2012 KKR        
11 $7.92 100.00 $798.79 5/3/2012 BAC        
12 $10.21 100.00 $1,027.86 5/8/2012 GRPN $14.89 5/14/2012 $457.64 44.52%
13 $8.04 100.00 $810.55 5/8/2012 ZNGA        
14 $1.10 20.00 $2,240.00 5/9/2012 PUT AOL INC $22 EXP 01/19/13 $1.35 5/10/2012 $419.93 18.75%
15 $1.13 20.00 $2,300.00 5/11/2012 PUT BEST BUY COMPANY $15 EXP 01/19/13 $1.25 5/14/2012 $159.94 6.95%
16 $0.74 20.00 $1,520.00 5/14/2012 MSFT 130119 C 35.00        
17 $7.45 400.00 $2,987.00 5/14/2012 BAC        
18 $0.46 40.00 $1,895.00 5/14/2012 YHOO 130119 C 20.00        
19 $0.41 5.00 $225.00 5/14/2012 BAC 121117 P 6.00        

Don’t Try to Be Great

I recently read a fantastic op-ed at WSJ titled, “10 Things Your Commencement Speaker Won’t Tell You,” and it was item # 10 that really reflected a theme that I’ve been trying to beat into the heads of transitioning junior military officers (JMOs) for a while now:

“10. Don’t try to be great. Being great involves luck and other circumstances beyond your control. The less you think about being great, the more likely it is to happen. And if it doesn’t, there is absolutely nothing wrong with being solid.”

This is a great point especially for transitioning JMOs because your platoon leader or company command time in combat was great. It is easy to think that because you have done something great, you will continue to do great things. Let me take a second to define great. When I talk to JMOs, a 20-year career at a Fortune 100 company isn’t considered “great.” There is almost a delusional sense that any JMO can become the CEO of any Fortune 100 company, be the next Steve Jobs, or go win a Pulitzer/Nobel prize within the next 5-10 years. I’ve been trying to beat that out of my friends’ minds, but now I think I have the statistical tools to do so: probability and standard deviation:

Probability: When the weatherman says there is a 50% chance of rain tomorrow, it doesn’t mean that there is a 50% chance that it will rain tomorrow. It means that out of 100 days with similar atmospheric conditions as tomorrow, it will rain 50 days out of 100. So if I said, if you give me $1 million dollars (and that is all the money you have), there is a 70% chance that you will make $1 million dollars off of that and 30% chance of losing everything, that isn’t necessarily a good deal for you, because you could be a millionaire today, but tomorrow you don’t have anything to support your family with. If you look at probability in this light, it should make you more risk averse. The Black Swan talks about this, although this isn’t the central theme to the book.

Standard Deviation: To modify that a little bit for more realistic applications, let’s take the GMAT as an example. What does it mean to do “great” on the GMAT? Does it mean 800? 700? 750? And how are you going to prepare for that score? Are you going to study 1,000 hours? No, why would you? Your approach to the GMAT should be the same as the weather. I’ve put in x amount of hours (most recommend 100 hours), and out of 100 tests, I would usually get 680-720 on the practice exams (although practice exams aren’t a good indicator of actual GMAT score, it is an indication). So if you get a 680, I wouldn’t say you did very poorly and if you got a 720, I would say run with it.  Standard deviation measures how much variation exists from the mean. The better you get at the GMAT, the more you lower your standard deviation. If you can consistently get a 695-705, that is better than a 690-710, which is better than 680-720.

Hard work can lower your standard deviation of success in life, but you will always end up with a range. Nobody ever gets a specific score consistently on anything, i.e. getting a 700 on 20 attempts at the GMAT. Luck and other circumstances will make you a 680, a 720, or anything in between. So JMOs should stop worrying about the end goal – 720 (or 800 for my ambitious friends), and look at what they really want to get out of their next job, or their long term career.

Each job pays you in two currencies: US Dollars and Experience. Everyone needs money, but make sure you get some worthwhile experience as well. When you look back at your life 20 years later, you should feel comfortable being a 680 or a 720 because that is what you have built your life around. Luck might take you to 800 (Steve Jobs success level) or 600 (Mediocre level: stuck in middle management at a Fortune 100 company).

This is obviously much easier said than done and I struggle with this as well, but I think taking this approach to life is at the minimum, more fun and less pressurized.


CFA Financial Reporting and Analysis: Balance Sheet

The balance sheet section is rather self-explanatory: know the various components and characteristics of assets, liabilities, and equity. The only things of note to mention are:

  • The differences between held-to-maturity securities (HTM), trading securities (TS), and available-for-sale securities (AFS)
  • Components of equity
  • Intangible assets

HTM vs TS vs AFS:

Example: Amazon invests in Google

Shares purchased 0-20% 20-50% 50%/50% 50%+
Type of investment Financial Investment Influence Joint Venture Control
Valuation Cost or market Equity Equity (GAAP), Proportionate consolidation (IFRS) Consolidation, purchase

FAS 115 provides definition of valuation of passive ownership (0-20%)

HTM: long term, passive (debt)

AFS: either (equity or debt, current or non-current)

TS: short term, speculative (equity or debt)



1/1/2012: Purchase 30 bonds with $1000 face value and 5% coupon

12/31/2012: Market price of bonds is 1010

Income Statement $1,500 $1,500 $1,500 // 300 Unrealized Gain
Balance Sheet 30 x $1,000 30 x $1,010 // OCI 300 30 x $1,010 // RE 300


Equity: There are 6 components:

1)      Capital at par value, part of Contributed Capital

2)      Additional paid in capital (APIC), part of Contributed Capital

3)      Retained Earnings – undistributed NI, undistributed accounting income

4)      OCI

5)      Minority interest / NCI – if you have more than 50% ownership, account for 100% of income and then subtract out portion not owned in minority interest.

6)      Treasury Stock – contra account


Intangible Assets:

There’s a lot to write, but for now:

GAAP – Expense Research and Development

IFRS- Expense Research, Capitalize Development

Capitalizing = higher income, current earnings go up, smooth

Expensing = lower income now, higher income later

Exception: Software (GAAP) – It is possible to capitalize both Research and Development



My Level 1 Status as of 4/30/2012:

Hours studied: 75.5

Practice questions taken: 640

-QBank- 23/30; 25/30; 44/60

-QBank- 38/60
-SchweserNotes: Technical Analysis- 6/9

Portfolio Management:
-QBank- Quiz 1: 26/30; 22/30
-SchweserNotes: 10/13; 10/13; 3/5; 2/6

Financial Reporting and Analysis:
-QBank – 39/60; 15/30
-SchweserNotes: 5/6; 7/8; 14/22; 11/14; 24/25; 14/18; 5/8; 6/10; 14/20; 4/7; 4/4; 5/8; 7/16; 10/24
-Other: 19/25;

Corporate Finance:
-QBank – 21/30;

-QBank – 21/30;

Test Strategy and Approach, GMAT vs CFA

Since I’ve been studying for both the GMAT and the CFA, I haven’t had a free weekend off in about two months, and it’s only going to get tougher as I approach both exams: June 1 (GMAT) and June 2 (CFA). Before we get any further, I’d like to just say that is is utterly a horrible idea to study for two major exams at the same time. I could probably make up some excuses about why I am doing so but it’s probably all BS just to make myself feel better.


What I have found interesting is the similarities and differences between the GMAT and the CFA. For both, brute force and cramming won’t do much good and no one has ever scored all 240 questions correctly on any level of the CFA and no one has ever reached a 60 raw score for both the quant and verbal section of the GMAT. However, people have received 800 GMAT scores, just not with 60 (perfect) raw scores. The Verbal and Quantitative scores range from 0 to 60. If you are a person who likes to score 100 on exams, then you are in for some pain.


For example, the GMAT is an adaptive test that adjusts to your ability as you answer more questions. If you operate at a 45 raw quant level, the test will give keep giving you questions and hone you down to 45, i.e. you will receive a 48 level question and if you fail, it will give you a 42 level question next. If you pass, it will jump up to 46, and if you fail, it will go down to 44, etc. That means high scorers on the GMAT can potentially be getting a lot of questions wrong. If you consistently score in a high raw score range, you will have a high GMAT. Since you are facing off a computer which has limitless capability in finding obscure math and verbal topics to stump you, your best approach is to study the best you can and build an approach that works for you. If your approach fails to get you an answer, move onto the next one.


The CFA has 240 questions and like the GMAT, it has so many topics to choose from that it prevents one from memorizing or knowing everything. Unlike the GMAT, you don’t get a grade, you just need to beat enough other people to get a pass as it is a pass/fail exam. For the CFA, having notes really helps because the most important thing to know is the concepts and then answer problems testing your knowledge of these concepts. Memorizing formulas (most) usually doesn’t help without knowing the background behind the formula.


I find the approach to the GMAT completely different as I don’t necessarily need to take any notes or memorize anything like accounting or derivatives. By doing a bunch of practice questions, I’m basically building up a library of techniques to approach different problems. You have known the basic math formulas since junior high school so it isn’t really taxing to just refresh your memory on those.


The most important thing of all that I have learned is to approach both exams as an opportunity to learn. The biggest part of the CFA is understanding how to analyze financial statements for business purposes (non-accounting). I’ve started some informational interviews with investment bankers and the #1 skill they keep emphasizing is to understand accounting from an investors perspective. For the GMAT, I’m building mental endurance and agility as I have to keep answering high-level questions for an extended duration of time. Your mind needs exercise too. If you approach both exams only in terms of just trying to “beat it” – and you may succeed – you won’t get the most out of the hours you put in. I feel that is is more worthwhile to approach both of these exams in terms of learning something new.

Cost Benefit Analysis: Using GI Bill to Pay for CFA and GMAT

Good news…CFA is an authorized exam under the GI Bill.  they subtract months off of your GI Bill per test. Bad news: If you are using the Post-9/11 GI Bill, you will be charged one month of entitlement for each test taken or each $1,460 reimbursed (whichever is less). If you are using any other GI Bill your entitlement is charged proportionate to the cost of the test compared to your full-time monthly payment rate. So that means if I wanted to get reimbursed for the CFA level 1 ($1,175) and the GMAT ($250) that would remove roughly one month ($1,425) away from my 36 months of GI Bill. My June 2011 CFA costs below:

1 Level I CFA Examination Registration $745.00
1 CFA Exam Enrollment June 2011 $490.00
1 Level I Print Curriculum June 2011 $225.00
1 Level I eBook Curriculum June 2011 $185.00
Discount $490.00
Shipping $20.00
Sales Tax $0.00

If you know for sure that you are only pursuing a 2-year graduate degree then you shouldn’t use the GI Bill to cover any testing or licensing examination fees. If you are using the GI Bill for a 4-year undergraduate degree, then definitely don’t use the GI Bill to cover any testing or licensing examination fees. Although I’m starting an MBA this fall, I’m also considering a one-year mid-career MPA or MPP 5-8 years down the road. The only variable is how the GI Bill will be affected by then. Once Afghanistan is done in 2014, who knows what will happen to veteran benefits? The pessimistic view is that it could be best to just exhaust them before negative legislation comes out. A more optimistic scenario is more relaxed transferring rules and I could perhaps transfer my remaining 12 months of benefits, after using 24 months for my MBA, to my daughter.

CFA Financial Reporting and Analysis: Income Statement (Draft)

The income statement (I/S) measures performance. When prepared for the IRS, it is reported on a cash basis. When prepared for financial reporting, it is reported on an accrual basis.


Common Income Statement

Revenue: Sales
Gains (Market Value >  Book Value)
Expenses: Cost of Goods Sold (COGS) – LIFO vs. FIFO
Selling, General, and Administrative (SG&A)
Depreciation and Amortization (accounting depreciation) – matching principal, matching costs with benefit
Tax Expense

Net Income


Revenue – COGS = Gross Profit

Gross Profit – SG&A = Operating Profit

Gross Profit + Other Income and Revenues – Financing Costs ± Unusual or infrequent items = Income before Tax

Income before Tax – Provision for Income Taxes = Income from Continuing Operations (“The Line”)

Income from Continuing Operations ± Income from discontinued operations ± Extraordinary items = Net Income (The “Bottom Line”)


Notes on terminology above:

  • “Gross” on I/S means before tax and expenses
  • Operating profit is almost the same as Earnings Before Interest and Taxes (EBIT) but not identical
  • Other incomes and revenues is interest received and dividends received. These are ancillary, not part of core business
  • Financing costs is accrued interest expense
  • Provision for income taxes is tax expenses minus deferred tax asset (DTA) / deferred tax liability (DTL)
  • DTA = paid too much
  • DTL = paid too little
  • Above the line = pre tax, below = post tax
  • Extraordinary items (GAAP only): Unusual AND infrequent events. For example, natural disasters and expropriation
  • Unusual or infrequent:
    • Disposal of business segment (10% of total profit, assets, or revenue)
    • Gain or loss from sale of investment of subsidiary (20-50%)
    • Provisions of environmental remediation (clean up costs)
  • When Market Value <  Book Value, B/S goes down, I/S shows loss only on financial reporting, not IRS (not sold yet), will create DTA
  • Discontinued operations – company hasn’t done anything yet, forward looking. It is below the line so it is a relatively large accounting decision


Net Income (NI):

Revenue – Expenses = NI

NI has 2 components:

1)      Dividends declared

2)      Retained earnings

NI is accounting income not adjusted for risk

Accounting point of view on $500 NI = Good

Finance point of view on $500 NI = May or may not be good, depends on how much risk was involved in getting $500.

Example: Declare a dividend, dividend payable goes up, retained earnings goes down


Comprehensive Income: this is a more inclusive measure of equity than net income, which is only revenue minus expenses. This measure is necessary for financial analysis from the shareholders’ point of view.

Comprehensive Income = Net Income (I/S) + Other Comprehensive Income (B/S)


Other Comprehensive Income (OCI):  It is comprised of certain transactions that affect shareholder wealth that bypass the I/S.

There are 4 components to OCI (B/S):

1)      Unrealized gains and losses on available for sale securities (ex. GOOG buys 2% AAPL, If AAPL increases at the end of year, marketable securities and OCI goes up on the B/S. When position is closed, put gain/loss on the I/S. This is kept on B/S to decrease fluctuations the on I/S

2)      Pension expenses – pensions are all about guesses and expectations, therefore it isn’t accurate to put it on the I/S. Keep on the B/S

3)      Hedging with derivatives – The market fluctuations would cause variations on the I/S is unnecessary, keep on B/S

4)      Currency translation adjustment for foreign exchange – Same as above


Revenue Recognition:

GAAP: Risk and reward of ownership transferred

IFRS: Probable flow of economic benefits

Example: An item with a 90 day warranty isn’t a sale until 90 day expires

Types of revenue recognition: sales basis, percentage of completion, completed contract, installment sales, cost recovery method


  • Sales Basis: This is the majority of most businesses. Buy inventory with cash and sell it for cash (or credit card transactions, basically no accruals are necessary)
  • Percentage of Completion: Reliable estimate of cost and completion required. Expense/cost drives revenue. If it takes 4 years and costs $1.6M to build a plane, and the cost is uniformly distributed, 1/4 of revenue will be recognized every year. Assets go up, NI goes up, volatility goes down, cash flow (CF) remains the same. Example: Total Revenue (TR) = $2M, Total Cost (TC) = $1.6M, Profit = $400K
    Year 1 Year 2
    Revenue 500,000 (400K/1.6M)=.25(2M) 625,000 (500K/2M)=.3125(2M)
    Expense (400,000) (500,000)
    Profit 100,000 125,000
    CF 500,000 500,000
  • Completed Contract (US GAAP only): No reliable estimate of cost and completion. Show everything at end.
    Year 1 Year 2 Year 3 Year 4
    Revenue 0 0 0 2M
    Expense 0 0 0 1.6M
    Profit 0 0 0 400K
    CF 500,000 500,000 500,000 500,000
  • Installment Sales: Cost is certain, collectability is not. Example: TR = $200K, TC = $100K, Profit = $100K
    Year 1 Year 2
    Revenue 40%(Profit)=4K  (profit)=6K
    Expense 8K/20K=.40 12K/20K=.30
    Profit 0 0
    CF 8,000 12,000




  • Cost Recovery Method: Cost is not certain, collectability is not certain. Every dollar coming in goes to recover cost until all cost is paid off
    Year 1 Year 2
    Revenue 8000 12000
    Expense 8000 2000
    Profit 0 10000
    CF 8,000 12,000

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement.


Basic EPS = NI – Preferred dividends (all convertible and non-convertible)

Diluted EPS

Stock Options Are dilutive, warrants less dilution than stock options
Convertible Debt May be dilutive
Convertible Preferred Stock




Treasury stock method

-Hypothetically repurchased. 15 x 100,000/20 = 75,000 shares (hypothetical number of shares needed, short 25,000 which needs to be issued)

-Stock options: if you exercise the shares, you will get it as salary, so they can claim as expense and pay lower taxes. They won’t actually let you exercise the options, they will give you the difference.

-Stock split is a special case of a stock dividend


Example: 1/1: 10,000 common shares outstanding, 4/1: 5,000 convertible preferred shares are converted, 7/1: 10% stock dividend, 9/1: repurchased 5,000 shares

Weighted average = (11000*12/12)+(5500×9/12)-(5000×4/12) =

The easiest way to adjust for these shares is to check the date of conversion or stock dividend/split and multiply the change in shares by the months, i.e. Convertible Preferred Shares are converted on April 1, multiple the number of converted shares by  9/12


Dupont formula



My Level 1 Status as of 3/8/2012:

Hours studied: 50

Practice questions taken: 316


-QBank- Quiz 1: 23/30; Quiz 2: 25/30


-QBank- Quiz 1: /60; 38/60
-SchweserNotes: Technical Analysis- 6/9

Portfolio Management:

-QBank- Quiz 1: 26/30
-SchweserNotes: 10/13; 10/13; 3/5; 2/6

-QBank – 39/60
-SchweserNotes: 5/6; 7/8; 14/22
-Other: 19/25;