Senior Exploitation

Series 66 Exam Curriculum (Uniform Combined State Law Examination) --- ## Topic 1: Economic Factors and Business Information (8%) --- ### Section 1.1: Financial Ratios, Valuation, and Business Analysis Estimated study time: 45 minutes Content: The Series 66 tests your ability to analyze economic data and financial information in the context of making investment recommendations to advisory clients. This section bridges finance theory with practical client service — skills central to the investment adviser representative (IAR) role. Financial statement analysis begins with the three core statements: the income statement (revenue, expenses, profit), the balance sheet (assets, liabilities, equity), and the cash flow statement (operating, investing, financing cash flows). Investment advisers use ratios derived from these statements to assess company health and valuation. Price-to-Earnings (P/E) ratio = Market Price per Share / Earnings Per Share. A high P/E suggests the market expects strong future growth; a low P/E may indicate undervaluation or weak growth prospects. Growth stocks typically carry higher P/Es than value stocks. Price-to-Book (P/B) ratio = Market Price / Book Value per Share. Book value is total assets minus total liabilities divided by shares outstanding. A P/B below 1.0 means the stock trades at less than the accounting value of net assets — potentially undervalued or in a distressed industry. Debt-to-Equity (D/E) ratio = Total Debt / Total Shareholders' Equity. This measures financial leverage. A higher D/E indicates more financial risk because more obligations must be serviced regardless of business conditions. Capital-intensive industries (utilities, telecom) often operate with higher D/E ratios than technology firms. Return on Equity (ROE) = Net Income / Shareholders' Equity. Measures how effectively management uses equity capital to generate profits. Higher ROE generally indicates…