Financial Ratios and Corporate Analysis – Series 7 Exam

📊 Financial Ratios and Corporate Analysis – Series 7 Exam Guide
Understand the Numbers Behind the Business

For anyone preparing for the Series 7 Exam, mastering financial ratios and corporate analysis is essential. This topic helps candidates evaluate company performance, risk, and investment suitability—all skills needed to advise clients effectively.

📘 Why It Matters on the Series 7

The Series 7 tests your ability to interpret corporate financial data to determine the health and value of a company. You’ll need to:

• Understand key financial ratios
• Analyze income statements and balance sheets
• Identify trends and assess risk
• Make suitability recommendations based on the numbers

📊 Key Financial Ratios to Know

✅ Liquidity Ratios

1. Current Ratio = Current Assets ÷ Current Liabilities
   • Measures short-term solvency (target > 1)
2. Quick Ratio (Acid-Test) = (Current Assets – Inventory) ÷ Current Liabilities
   • More conservative than current ratio

✅ Profitability Ratios

3. Net Profit Margin = Net Income ÷ Revenue
   • Indicates profitability efficiency
4. Return on Equity (ROE) = Net Income ÷ Shareholders’ Equity
   • Measures return for common shareholders

✅ Leverage Ratios

5. Debt-to-Equity Ratio = Total Debt ÷ Total Equity
   • Assesses financial leverage and risk
6. Interest Coverage Ratio = EBIT ÷ Interest Expense
   • Shows ability to pay interest on debt

✅ Efficiency Ratios

7. Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
   • Measures how efficiently inventory is used
8. Asset Turnover = Revenue ÷ Total Assets
   • Gauges how well a firm uses its assets to generate revenue

🧾 Corporate Analysis Skills for the Series 7

• Reading Income Statements: Revenue, expenses, EBIT, net income
• Analyzing Balance Sheets: Assets, liabilities, and equity structure
• Understanding Earnings Per Share (EPS):
  • EPS = (Net Income – Preferred Dividends) ÷ Shares Outstanding
• Evaluating P/E Ratio:
  • Price-to-Earnings = Market Price ÷ EPS

🧠 Series 7 Exam Tips

• Expect scenario-based questions using financial data
• Be prepared to compare ratios across companies to assess risk and return
• Know how ratio changes affect investment recommendations
• Practice solving simple ratio math quickly—under time pressure

🎯 Build Real-World Confidence

At finra-exam-mastery.com, our Series 7 course includes:

• Ratio flashcards
• Balance sheet breakdowns
• Corporate analysis quizzes
• Practice case studies aligned with FINRA’s exam outline

Understand the story behind the numbers—pass with confidence.
Master the math. Master the exam.