Series 86 cheat sheet

Primary data are collected directly from company filings, management interviews, or proprietary surveys; secondary data are previously published by third parties.

SEC Form 10-K is the annual audited business and financial report; Form 10-Q is the quarterly unaudited update; Form 8-K discloses material events.

Form 4 reports changes in insider ownership, generally within two business days; Form 13F reports certain institutional equity holdings quarterly.

Regulation FD prohibits selective disclosure of material nonpublic information to analysts or investors unless the information is simultaneously or promptly made public.

Survivorship bias arises when a dataset excludes failed or delisted companies; look-ahead bias uses information that was not available at the forecast date.

A sampling frame must cover the target population; nonresponse and selection bias can make survey results unrepresentative of that population.

Comparable-company screens should match business model, geography, size, growth profile, and accounting standards before multiples are applied.

Audited financial statements follow GAAP or IFRS; adjusted or non-GAAP metrics require reconciliation to GAAP and consistent definitions across periods.

DuPont decomposition: ROE = net profit margin × asset turnover × equity multiplier, separating profitability, efficiency, and leverage.

FCFF = EBIT × (1 − tax rate) + depreciation and amortization − capex − increase in net working capital.

FCFE = FCFF − after-tax interest expense + net borrowing; FCFF is discounted at WACC and FCFE at the cost of equity.

WACC = (E/V) × cost of equity + (D/V) × after-tax cost of debt, using market values and a target capital structure for firm valuation.

CAPM: cost of equity = risk-free rate + beta × market risk premium; beta measures systematic risk, while unsystematic risk is diversifiable.

Enterprise value = market capitalization + debt + preferred stock + minority interest − cash and short-term investments.

Gordon growth terminal value = next-period FCFF ÷ (WACC − perpetual growth rate), with perpetual growth generally below long-run nominal GDP growth.

Residual income = net income − (cost of equity × beginning book value of equity); EVA = NOPAT − (WACC × invested capital).

Sustainable growth rate = ROE × retention ratio = ROE × (1 − dividend payout ratio), assuming constant margins, leverage, and asset turnover.

Forecast revenue using volume × price or a segment build, tying growth to market size, market share, and pricing assumptions.

Forecast operating margin from historical ranges, fixed-versus-variable cost mix, and expected operating leverage as revenue changes.

Capex should support revenue growth; in steady state, capex approximates depreciation plus net new capacity needed for growth.

Increases in receivables and inventory consume cash, while increases in payables and accrued liabilities provide cash.

DCF value = present value of forecast FCFF + present value of terminal value; use WACC for FCFF and cost of equity for FCFE.

Exit-multiple terminal value = terminal EBITDA × selected multiple; check the implied perpetual growth rate for reasonableness.

Trading comparables use public-company multiples; precedent transactions use acquisition multiples and typically reflect control premiums.

Implied share price = (enterprise value − net debt − preferred stock) ÷ diluted shares outstanding; use the treasury stock method for options.

Sensitivity tables vary one or two inputs; scenario analysis changes multiple correlated assumptions across base, upside, and downside cases.