Do I Really Need to Memorize ALL of The Formulas?

This question is present in one out of every 25 questions on the message board, and the answer is always the same: YES.  You can choose not to, and take the risks, but it is likely to produce unfavourable results.  Good news for those of you who hate math out there: in the two exams I have taken and other exams others have taken who I have talked to, formulas have played a very small role in the overall test.  In fact, there is a a possibility that you could pass the test without understanding any of the formulas.  I wouldn’t be to inclined to do that, but I could see it being possible.  In test one the formulas are fairly simple, although they do require a understanding of the theory behind them.  Test 2 however, the theory is easier to understand but the formulas are a little more complex.  There is a whole chapter dedicated to specific formulas for analyzing company performance.  Overall I think there is 30 or so formulas for test 2 alone.

The good news to those of you who are hitting your heads against the desk, is that you don’t need to remember all of them.  In the CSC FAQ for chapter 14, the CSI clearly states that you don’t need to memorize how to conduct the formulas off the balance sheet or earnings statements per se, however, you will need to know how these formulas are used, what they mean and when they can provide useful information.  For the tests, a lot of this information was already provided for you.  I was not asked to calculate P/E or the Sharpe Ratio, but I was given those numbers and asked a series of questions.  Be prepared to be able to recite what a P/E of 9.3 means or a Inventory Turnover Ration of 15 vs 12.  Don’t be intimidated, just focus on the task one step at a time.

Do I really need to memorize all of those formulas? The answer like every finance related term is: kind of maybe, but not really, to some extent yes but in the broader picture no.  So just know the formulas well, but don’t memorize them.  But know them, really well.  Don’t worry about it, just know it, but don’t study it hard. Short answer: Yes you need to memorize all of the formulas and no you don’t need to memorize all of the formulas.  If your scratching your head right now, that’s good.

– Steve