Series 86 Exam Preparation Course Outline

Lesson 1: Economic Analysis Overview

Learning Objectives
Supply and Demand
Supply and Demand Curves
Movements Along the Demand and Supply Curves
Shifts in the Demand and Supply Curves
Supply and Demand Review Activity
Microeconomic Equilibrium
Elasticity
Price Elasticity
Income Elasticity
Price Elasticity Coefficients
Elasticity Review Activity
Short Run Cost Curves
Long Run Cost Curves
Cost Curve Review Activity
GDP
GDP Calculation
Real GDP VS. Nominal GDP
GDP Deflator
Limits of GDP
Gross Domestic Product Review Activity
Inflation
Harmful Effects of Inflation
Inflation Review Activity
The Business Cycle
Labor Market and Unemployment
Labor Market Figure Calculations
Full Employment
Full Employment And Its Effects On Inflation
Labor Market Leading Indicators
Unemployment Review Activity
Interest Rates
Influence On Interest Rates
Supply And Demand Of Funds & Interest Rates
Federal Reserve Banking System
Function of Money
Deposit Expansion Multiplier
Impact of Monetary Policy
The Equation Of Exchange
Quantity Theory of Money
Monetary Policy Review Activity
Fiscal Policy
Budget And Trade Balances
Putting It All Together
Automatic Stabilizers
Fiscal Policy Review Activity
Foreign Exchange
Factors Affecting Foreign Exchange
Fixed Vs. Pegged Exchange Rates
Purchasing Power Parity (PPP)
Foreign Exchange Review Activity
Balance of Payments
Global Economic Analysis
Global Economic Review Activity
Review

Lesson 2: Industry Analysis

Industry Life Cycle
Product Life Cycle
Business Cycles
Industry Types And The Business Cycle
Business Cycle Review Activity
Industry vs. Stock Analysis
Company Analysis Vs. Stock Selection
Demand Analysis
GDP Growth And Industry Demand
Demand Analysis Example
General Tenets Underlying Demand Analysis
Supply Analysis
Demand & Supply Analysis
Supply and Demand Analysis Review Activity
External Factor Analysis
Pricing Analysis
Five Competitive Forces
Prospects For Different Industries And Companies
Competitive Strategy
Risks of Different Competitive Strategies
Risks of Trying to Pursue More Than One Competitive Strategy
Competitive Analysis Review Activity
Industry Competitive Environments
Monopolistic Barriers to Entry
Oligopolies
Industry Concentration Ratios
Oligopolies & Collusion
Government Regulation of Industries
Costs & Benefits of Government Regulation
Industry Concentration Review Activity
Review

Lesson 3: Company Analysis

Sources of Information
The Balance Sheet
The Balance Sheet Format
Current Assets
Long-Term Assets
Current Liabilities
Long-Term Liabilities
Stockholder’s Equity
Balance Sheet Example
Balance Sheet Review Activity
Statement of Stockholders’ Equity
The Income Statement
Income Statement Analysis
Extraordinary and Non-Recurring Items
Unusual or Infrequent Items
Discontinued Operations
Extraordinary Items
Accounting Changes
Prior Period Adjustments
Extraordinary and Non-Recurring Item Review Activity
Statement of Cash Flows
Cash Flow from Operations
Cash Flow from Investing
Cash Flow from Financing
Methods Of Cash Flow Construction
Cash Flow from Operations
Cash Flow from Investing
Cash Flow from Financing
Direct vs. Indirect Method Example
Direct Method – Cash Flow From Operations
Direct Method – Cash Flow From Investing
Direct Method – Cash Flow From Financing
Indirect Method – Cash Flow From Operations
Indirect Method – Cash Flow From Investing
Indirect Method – Cash Flow From Financing
Free Cash Flow as an Indicator
Free Cash Flow Example
Statement of Cash Flow Review Activity
Revenue Recognition
Revenue Recognition Methods
Percentage Of Completion & Completed Contract
Percentage Of Completion vs. Completed Contract
Percentage Of Completion vs. Completed Contract – Example
Percentage Of Completion vs. Completed Contract – Income Statement
Percentage Of Completion vs. Completed Contract – Cash Account
Percentage Of Completion vs. Completed Contract – Retained Earnings
Percentage Of Completion vs. Completed Contract – Assets & Liabilities
Percentage Of Completion vs. Completed Contract – Balance Sheet
Percentage of Completion vs. Completed Contract – Putting It All Together
Revenue Recognition Methodology Review Activity
Analysis of Income Taxes
Deferred Income Tax
Deferred Income Tax Example
Deferred Income Tax Example
Analysis of Income Taxes Review Activity
Financing Liabilities
The Effect of Issuing Debt
Financing Liabilities Review Activity
Lease Classification And Off-Balance Sheet Debt
When Must A Lease Be Capitalized
Operating Lease vs. Capital Lease
Lease Classification Example
Lease Classification Example
Operating Lease vs. Capital Lease
Other Off-Balance Sheet Debt
Leasing Review Activity
Review

Lesson 4: Financial Analysis

Analysis of Financial Statements
Common Size Financial Statements
Common Size Financial Statement Example
Common Size Financial Statement Review Activity
Ratio Analysis
Internal Liquidity Ratios
Turnover Ratios
Cash Conversion Cycle
Internal Liquidity Review Activity
Measures of Operating Performance
Operating Performance - Profitability Ratios
Measures of Operating Performance - Return on Invested Capital
Measures of Operating Performance Review Activity
Operating Leverage
Financial Leverage
Measures of Financial Risk
Earnings Flow Ratios
Internal Liquidity Review Activity
Cash Flow Ratios
Sustainable Growth Rate
External Market Liquidity
Return on Equity and the DuPont Model
Extended DuPont Model
Internal Liquidity Review Activity
Company Relative Performance
Review

Lesson 5: Valuation

Present Value
Cost of Capital
Cost of Debt
Cost of Retained Earnings
Cost of New Common Equity
Weighted Average Cost of Capital (WACC)
Weighted Average Cost of Capital Review Activity
Discounted Cash Flow (DCF) Models
DCF Models
DCF Model Review Activity
Determining the Discount Rate
Capital Asset Pricing Model (CAPM)
Measuring Systemic Risk
CAPM Equation
Arbitrage Pricing Theory (APT)
APT Example
Bond Yield Plus Risk Premium
Determining the Discount Rate Review Activity
Gordon Growth Model
Gordon Growth Model for Perpetual Dividend
Gordon Growth Model – Strengths and Weaknesses
Dividend Discount Model (DDM)
Dividend Discount Model – Example
Dividend Discount Model for a Finite Holding Period
The Infinite Holding Period DDM
Dividend Discount Model Review Activity
Enterprise Valuation (EV)
Free Cash Flow Valuation
Discount rates for FCFF and FCFE
Free Cash Flow Valuation
Advantages and Disadvantages of FCFE Model
Supply and Demand Review Activity
Price Multiples
Alternative Valuation Multiples
Residual Income Model (RIM)
Determining Residual Income Per Share
Valuing a Stock Using the Residual Income Model (RIM)
Strengths and Weaknesses of RIM
Residual Income Model Review Activity
Review

Lesson 6: Security Selection

Learning Objectives
Security Selection
Comparables vs. Fundamental Valuation
Earnings Yield
PE–to–Growth (PEG) Ratio
Earnings Yield Review Activity
Alpha
Computing Ex Ante Alpha Example:
Computing Ex Post Alpha Example
Ex Ante Alpha Review Activity
Technical Analysis
Technical Analysis – Common Chart Types
Elasticity Review Activity
Review