if you click on this video congratulations for taking an interest in the CFA level 1 exam like I always say the CFA exam can be a little daunting so I try to do these videos to help you so hopefully you can pass and succeed I've done three videos where I've covered some of my best study tips study methods and how to stay motivated throughout the process so definitely check those out but I've gotten a lot of feedback about my focus on formulas and a lot of people like that I share my list of formulas that I use to pass the exam so today I'm gonna do a deep dive into that list and show you guys what I did to remember some of my tricks are simply understanding the formulas and other of my tricks are just weird acronyms that I created or techniques that hopefully will help you too so without further Ado let's get to it okay so here we have a little notepad in case you didn't see the last video that I did where I talked about formulas for the next 10 seconds I'm gonna add the list of formulas and also the note card if you want more detail as to why do it this way go watch this video but let's do that real quick foreign all those formulas I'm gonna be showing here I won't be covering every single one because that will make the video way too long but I'm just going to cover a few that come to mind and that I've been preparing so you guys can memorize them as well and I will be following the normal order of the exam um just like the books are so let's do that so I'm going to cover the ones to the left first and then do the ones on the right a few of them you're gonna make sense and I have tricks a few of them you're going to have to memorize probably use writing down a bunch of times an example of that is a mean absolute deviation harmonic mean all all of them so for example for multiplication rule of probability um let's make a little line here so here you know that multiplication is p and it's a times B right well the way I remember is this order right here whatever it is if it's a and b or if it's b b and a you're gonna have it the same but just with a line in the middle um which I think it's summation I forgot I forgot which one it is but I remember that these two are going to be the same order and then you always multiply times a second so P times B that's a way to remember the formula multiplication however different then if we scroll down then base formula because different than this one where the order was the same for base formula the order is flipped so as you can see here it's a b but in this one it's going to be ba so let me change here so p b a you multiply again times the second so p a and then PB and then here you can you know you can keep simplifying and you get this final formula right here right now addition rule probability you probably took a statistics class sometime in high school or college uh the best way to memorize this formula is simply by visualizing uh two graphs so you know that if you want to get the area of these two circles you're going to have to add up the first single so PA plus the second Circle PB oops and then you're gonna subtract the part in the middle because you don't want to double count that one so that will be p a b right the color got a little weird there then various of portfolio can seem a little intimidating it really isn't um multiply the weight times the standard deviation um both squared of a then of B and then two times and I just feel like you can multiply everything so the way way covariance so you do that z-score you just have to remember the way it goes but it's very very important continuous distribution I just felt like it's the second subtracting the first one so at the top you have X so it's X2 minus X1 so X2 comes second and then B minus a b comes after the a so it's kind of subtracting that um f sat I have one of my first weird names in the way that remember this is this is the masters in science in real estate formula because you have MS which stands for masters in science and you have it both in the numerator and then the denominator and then you have the r for Real Estate the r and then the E for real state so this formula right here I'm running out of space I call it the masters in science in real estate that probably uh could help you there binomial probability there's a small chance that you have a question in this in the exam but it's really not that hard to remember so I really recommend you do it um because it came up handy for me and and I saw a lot of questions like this in the Box um so yeah then for the confidence intervals for normal distributions I just remember that all of them had either a six or a five so here's 1.65 here's 1.96 and then here's 2.58 I think those are simplified to two decimal points and I think they're a little longer so yeah then correlation um just remember that the bottom it's not squared but it's going to be uh A and B and then at the top you're gonna have the covariance of A and B and then covarius calculation I think you need to know this formula but it's good to know if you want to double check your work so I highly recommend you mod uh you memorize it as well I can guarantee that if you memorize all these formulas here you're going to have everything you need for the exam but the odds are very heavy because I never approached a formula that I didn't know because I didn't have my list so I really think my list is very comprehensive comprehensive all right so I took a little too long so let's get to the next part economics so price and accessory of demand that's very easy GDP deflator very easy fiscal balance I actually really like this is one of the ones where I have a corny little joke um here I just remembered that fiscal balance you can switch it around and you can just simplify it for S minus I which is savings minus Investments um I liked it this way because here you just remember that I had negatives between every single one and negatives between these two and I just remember the the little acronym got like I have I got six mates and the way the formula went is there's a negative here equals so negative here negative here negative here so there's the got six mates formula um and I remember because I had a friends in college that had an apartment with six of them that they used to be called a six by six so shout out to them so that's the got six mates formula and then from here you can simplify for whatever you want so if you want to simplify here which happens sometimes you do s minus I and then you do G minus t plus x minus m so that works that way quantity theoremoney memorize that one this one as well balance of payments um I didn't usually remember what goes into each account like too detail but I had an overall sense and it's good to remember that it's current capital PLUS Financial accounts so that's that and then for forward spot I remember that I had forward on top spot on bottom and I remember the formula had one plus the interest rate so it's called IR over one plus the interest rate and I remember that the base goes in the base of the formula and then you know you have this part on Top but I just like the little you know the little acronym of bass in the base of the formula that's what helped me remember it so I have a lot of formulas here you have to remember every single one especially the ratios of like cash and stuff they're not that important I'll point out the ones that I think are the most important um straight line depreciation that should be very self-intuitive it's just the cost minus where you're going to be able to sell it out in the future divided by the useful life you've probably seen that uh formula in an accounting class um double the climbing back the balance the same basic eps obviously very important but if you understand it that's going to be the foundation for these but for this bad boy right here which is a diluted EPS which is a guaranteed question in every single mock I don't know about the exam I don't remember my exam but I remember that every single Mark had a question about the diluted EPs and if you have the ability of remembering it those are some easy questions in your pocket so once you understand that you're adding back all the things that can be converted it really doesn't become that hard so take a look write it down understand it read the explanation and you should be good there treasury matter method of shares is actually one of my favorite ones because I just remember amp amp minus EP um EP I forgot like you remember like Spotify EP stands for I forgot but I just remember amp amp here because it's the average market price mine is the EP divided by the average market price so I just remember amp on the top and amp on the bottom so that's good girls Pro for margin you probably know that from base current ratio usually know they're going to have current on both if you ask current assets you might have a current liability current ratio you have current current on the top current on the bottom quick ratio the best way to remember it is it's the most is the stringiest measure of your cash and availability they also call it the AC the acid test so think about the things that are the most liquid and it's like where well it's cash then you know things are remarkable and then the receivables so if you start thinking or you're going down the balance sheet in organization of liquidity it comes to that and then you have current liability so quick ratio and then even cash Ratio or just more specific uh um variations of the current ratio so it all comes from here so this is the quick ratio then you have the cash ratio which simply just eliminates receivables um and then you go from there so these are easy because you know these are literally telling you the name uh so you get the formula so that to equity ratio you have the dead on top and then accurate on the bottom we're not going to spend too much time there here's the same free cash flow of the firm and fluid cash flow of the entity you just have to write it down a bunch of times until you remember them there's really no best way of explaining it so all these are the ones that I mentioned that are not going to be super necessary for you to remember because they don't ask you that often and then even if they do you can most of the times just use the name to remember them so I want to spend that much time there however when you get to the interest coverage that's really important so no tips here but that's very important reinvestment ratio uh the payment ratio all that stuff then what I like doing for this ones is remember that days of the ones that have days off started with 365 on the numerator so number of days of number of days of all started with 365 in the numerator and then in the bottom they had a formula that had a numerator in the denominator so here for example receivables turnover oh sorry no for example days of cell outstanding is 365 divided by receivables turnover which is this one right here so spend some time memorizing that but it's important that you realize that because a lot of questions are going to ask you something like if we increase this what happens to the days of sales outstanding and what a lot of people do is that they will grab whatever number they give them and just put it here and they'll say well you know it decreases it but in reality the number doesn't just go there the number they give you is part of another formula that goes here which makes it the inverse and actually doesn't decrease it but increases it because you know Keep Change Flip or whatever so it's important to remember that usually the ones that say at days of sales or days of whatever start with 365 at the top and then have uh another formula which has a numerator and denominator a fraction on the bottom okay payables turnover all of these are really really really important because they bring you to this formula which actually one of my favorite formulas which is the cash conversion cycle first of all please don't forget that the cash conversion cycle has a negative for the last number and then you should be able to write down the cash conversion cycle by writing down the name of each of the three elements and then also be able to specify the formula for each of the three elements so every single time I had a question about a cash conversion cycle I will write it down and then I will write the formulas that went into each of them huge because that's one of the questions that comes up the most for financial statement analysis which has a lot of questions is the three step and the five-step Roe so the best way to remember this for me is well Roe it's gonna be equals is going to be net income divided by Equity right the three step and the five step are just going to be uh variations of this where you just add more and more terms that can just get canceled and we'll bring you back to net income divided by Equity so let me give you an example here I didn't you know I didn't I added the detail but for example the three-step Roe is it still has net income and Equity at the end and it just has a bunch of terms in the middle that you can cancel out and will arrive you to the same formula that we started from right and then when you think okay well net profit margin well I kind of know that one I know that's net income divided by the revenue um and then once you have that and you have the last one because you know at the last you're going to have Equity at the bottom you have the assay because remember the leverage has asset at the top you can think well I don't remember exactly what goes in the middle but I know I need to cancel them out so I can have equity in the bottom netting on the top well then I need Revenue at the top here an asset at the top so I can cancel both of them out well the same thing applies for the five step the five step just has two extra formulas in the middle that you can cancel out and get to the end so what I did is I just remembered for a five step I didn't actually remember the fractions I just remember the title of each one so tax burden interest burden even margin as a turnover financial leverage and then from there I will try to use logic and think well what are you what are going to be the formulas that go in here and what are going to be the elements that if I cancel out gets me to my old and most important fraction which is this one net income divided by Equity so hopefully that makes sense it's a matter of you figuring out what's the best way of remembering it inventory turnover is huge oops income tax expense is also huge and then I also really like this formula right here because it's one that if you have in the back of your pocket will probably give you a few questions so corporate issuers where a lot of the corporate issue formulas you already did in accounting so quick ratio we already did current ratio inventory turnover for asset beta and Equity beta I learned this in college not called acid or Equity but call levered and unlevered so when I think about lever I think too high and when I think about unlevered I think too low so when I think about uh asset data which is unlevered I think well I need to grab the level one and I need to decrease it how do I decrease it well I divide and then when I think about the lever beta I think well I have the unlever that I need to multiply to make higher make higher so all I have to remember is this portion of the formula right here and then by using logic I know where I need to use that if I need to either divide or multiply and actually remember this formula is not that hard once you practice it a few times but just think about levered means high on lever means low or that's the way I remember operating break even and then break even Point are going to be pretty much the same all you need to remember is this bad boy right here so don't be fooled because a lot of times it will give you the interest cost but then we'll ask you for just the operating and if you use the interest cost that's a very easy way for them to get you to answer the question wrong then degree of operating leverage in the green fight of the green financial leverage uh I like memorizing both so I like memorizing with ebit and sales but also memorizing them with quantities uh prices variable costs fixed costs and the big thing here is that the difference between the degree of total leverage and degree of operating Leverage is just going to be subtracting interest cost so all these formulas are very important make sure they remember them and then remember this little difference here operating cycle um as you can see here it's just gonna be the formula that I mentioned before the cash conversion cycle without this last value so let's put another color so without doing this this is going to be the operating cycle so that's a formula you can easily remember because you already have remember the other one so let's get to equity right so leverage uh uh ratio is easy here for Margin Call price I remember Pim P the I is not actually an i it's on one but I remember pin and I remember one minus maintenance in the bottom and I knew it was going to be the price cereal multiplied times uh division so I remember Pim can be a little hard to remember price weighted index and all these indexes uh measuring methods are a little hard to remember but they're very important they're one of the things I actually struggle with even though it's it's uh it's easy so you spend a lot of time you know trying to remember all of them because they're all very crucial okay then dividend discount model this is kind of like a fancy way of seeing it with the summation but it's really not that hard um when you think about it not in on the simplified here but just in the addition blah blah blah whatever it is prefer stock value constant Gordon growth level um what helped me the most to think is that I remember that if G if G increased then the value of the firm if the growth is higher the value of the firm is also going to be higher and the only way of doing that knowing that g is in the bottom is it is if it's subtracting because it's making the denominator smaller which makes the overall value higher sustainable growth array that's what you're going to use uh when you have the dividend payout ratio and that's a way a lot of times you're gonna get this G right here p e ratio the ratio of PE ratio with EPS is huge very important and then justify PE which simply what it does is that it multiplies both sides but one e one over e and here's one over e and that's why you get this value right here and this value right here so it shouldn't be that hard you might just need to remember the base formula Enterprise Value can be a little weird because you're subtracting the cash um and short investments just read the literature Regarding why that is fixed income we're approaching the hand almost there so flat Plies relationship to full price just write it down a bunch of times until you remember um here I like this normally remember these multi over the Big T current yield very easy spot forward relationship you always start with the spot rate and then you go into the one year rate one year from now or one year rate two years from now so make sure to remember this and make sure you're able to also come up with like this and how this becomes uh sorry for this should be outside of the parentheses make sure that you also know how to do all the breakdowns here because that's going to be probably one of the questions in the exam modular and it's rages the magdur it's very easy um and then also be able to do the approximated mod doer because that's going to be an easy way for you to save some time in the exam I like remember that I had the double negative so I had a negative here and then a negative but this is not actually a negative sign this just means that it's value uh when you decrease it and here's the value when you increase it and then the only difference between uh when you have effective is basically going to be the same formula the only difference is that instead of using the yield to maturity you use the Curve so that's a big difference not big difference it's not actually the small difference and then for convex it is going to be the same thing yield to maturity curve when it's effective so you just have to remember basically two formulas and then you just know that effective is curve and then approximate or normal is yield to maturity uh percentage change in bond price uh negative duration it was maturity very important formula do not forget the exponent here duration Gap you'd be impressed uh how many questions you're going to see in the mock uh based on this so make sure that you memorize that one because it's a very easy question very easy formula a lot of people forget about it then money duration and interest expense premium you don't have to really remember this formula but it's good to know it because it helps you understand and get a few questions derivatives um a lot of questions a lot of formulas here like this one you just have to remember it the way I remember this one is just using logic which is the forward means that the value that I have now is going to be compounded by the interest rate so easy way to do that then the value of a forward also just write it down and remember a bunch of times uh no Arbitrage forward price the weird thing with this formula is that the cost is added and the benefit is subtracted so that's a weird thing but once you understand it it will help you just that's one of the classic things where you're going to get the question wrong um option premium the exercise volume and then the time value that's a core concept of this entire exam very important for you to remember and then the split of the difference between a fiduciary call and then a protective put is very very very important because it brings you to the protocol parity which is I'd say the most important uh formula in the entire uh derivative section so once you remember and once you understand that the left side of the of the of the protocol parity is just a fiduciary call and then the right side is just going to be a protective put that's very important and then there's a protocol protocol forward parity which is very similar um it just has a few more values but once you remember this one getting to this one should be very easy alternative investment Investments no formulas you just have to understand a lot of the concepts and understand how to do the math so make sure you do that and then lastly you have the portfolio management um so holding period return it should be very easy it's just you know a normal percentage just don't forget to add the dividends you know it's like a percentage gain or percentage loss don't forget to add the dividends is a portfolio with two assets there's a lot of overlapping here with quantitative uh methods variants of portfolio already covered correlation we already covered beta it's a little different remember what I said here uh back at the beginning of the video of a multiplying times B well the difference between the correlation and beta is the beta it's just uh the same multiplied by itself so that one actually has an exponent because it's squared different than correlation which is two different things multiply times to each other sharp ratio if you understand what sharp ratio is which is just a measure of how successful you were in taking risk to deviate a higher return this formula shouldn't be hard to remember because it becomes very logic Market model this formula is not crazy important but if you can remember remember it and then here I have a little technique so portfolio management basically has four formulas that are very important which are Genesis Alpha M squared trainer measured and then the one that I had at the bottom which I'm going to write here again which is sharp which is e r p minus RF divided by standard deviation of the portfolio so here's one of my favorite tricks I knew that I need to remember this four formulas but I wanted to find a way to make it more effective so I remembered that M's the letter M has very sharp Corners so I remember Sharp in this case it's not sharp like this but sharp pay sharp m the video code out for a second but sharp M because M have sharp corners and then you have to remember this little guy right here which I call Mr trainer Jensen so once you know sharp M because of the sharp corners and the misser trainer Jensen you know that's Sharp and M squared go with standard deviation so M squared n sharp ratio both have standard deviation and then the other one this little guy right here which is trainer Jensen does not go with standard deviation but instead goes with beta and then Mr trainer Jensen your boy right here he has to do with beta right so beta and beta well and then it's actually starting on the interesting because trainer measure and sharp are pretty much the same formula the only difference is that one has beta and the other one has standard deviation and then Genesis Alpha Genesis Alpha is very easy because Genesis Alpha is just how you output how your portfolio outperformed the market so you just have cap M here which you remember and you're saying well how did my portfolio outperform that in World management and investment in general Alpha is a very big thing because it's how your portfolio performs so it's like well how much better was my portfolio from capm and then M squared is very similar to that formula if you expand it out you're going to see that but it just becomes the return of the portfolio minus the risk-free rate and then this same thing on the other side but with the return of the market multiplied by the standard deviation because like I said sharp m it uses standard deviation and that is it so a little bit of a longer video hopefully you liked it and hopefully you got something out of it remember that it's just a matter of practicing it can seem daunting but practicing writing that writing them down a lot and also using them in the exercises will make it a lot easier Focus practice and leave in the comments whatever you want to see next because I'll definitely check it out best of luck I'm gonna go to sleep peace [Music]