So there were about four really good comments (through Maratikus) and then the thread went all to heck.
Except in the sense that dinesh did it - a quick skim to get a grip on the scope of the exam - there is just no point in reading those books through. There is so much material there, you can't possibly remember it and you don't even know if you understand it when you are just reading it. I am absolutely sure that the number 1 way that people who spend lots of time studying fail the exam is by reading and re-reading whatever books they have.
You need to work problems and bounce ideas around your head so that they stick to something. For example, suppose that you are reading the section on calculating diluted EPS in Schweser (pg 110). By reading that section like a newspaper, I get nothing. There is something about the Treasury stock method which somehow leads to this gigantic formula. A bad study technique is then to get out the highlighter and highlight that formula intending to memorize it at some later date. Making a flash card is a similarly bad strategy except that some people do actually remember hundreds of flash cards. The worst strategy is to just keep going and assume that you must have learned something by reading that section.
Instead what you need to do is be active. So
1) What is EPS? You should know this and just think that EPS is the only reason that anybody should buy stock. Either you are getting a good piece of the pie now or you will later.
2) What is dilution? Dilution is evil - if I own stock but someone else is going to get some piece of my pie, I better account for that.
3) What are dilutive securities? Warrants, convertible bonds, some options (note that most options are not dilutive because they are just agreements between people to buy and sell stock), convertible preferred stock (and other more exotic things that probably dont matter). If you don't know what those are and can differentiate among them, you can't understand that formula so use google or something and figure them out.
4) So now try to figure out what diluted EPS is and you should think in your head - EZ, I just take net income - preferred div (why?) and divide by the total number of shares assuming that all those securities get converted into stock. And then, why the heck do I need this stupid formula?
5) Look at the formula assuming that it corresponds with what you think it ought to be (net income/total conceivable number of shares). Shoot. Didn't work. I hate FSA. Why doesn't this stupid formula correspond with my intuition?
6) Well, the denominator kinda does except it's got that weighted average number of shares. Fine, so the company can issue more shares during the period. Forgot about that but no big deal.
7) It's the numerator that's all messed up. Oh yeah - if the converts convert, I don't have to pay them dividends anymore so that income is available to me the equity holder. I get the convertible preferred dividends and I get the convertible debt interest. Except I don't quite because my interest payments were tax deductible so there is that tax shield thing. Anyway, I gain convertible preferred dividends, convertible bond interest, lose my tax advantage.
8) But wait there were other dilutive securities - the warrants and options. What happened to them in that formula? Surely, I should add in the cash that the company gets from exercise of the warrants and options to the numerator because that cash is clearly available to me. Why isn't it there? Must be a mistake in the formula. Send Schweser errata e-mail. Dumb F%^Ks. I spend $600 on this stuff and they make mistakes.
9) Oops, what was that stuff about Treasury Stock Method cuz I didn't use that anywhere. Oh no. The Treasury stock method says that all that money goes to buying back stock and reducing the denominator. Somewhere in that formula it should say something like "Net shares issuable from stock options". See I knew they made a mistake, unfortunately I sent them e-mail pointing out the worng mistake. Who cares? I'm actively learning and I don't care at all if I spam Schweser. I sent them $600.
10) Why did I do that Treasury stock method anyway? It's much cleaner to just add the cash to the numerator since cash is pretty fungible so it doesn't seem like we have to go repurchase stock with exercise money. Must be the same number. Work out example. Shoot it's not the same number. Errr..... Ask someone, post it on AF, hmmm.. JoeyDVivre says it's because accountants are liars. He is such a curmudgeon sometimes.
11) Examples in Schweser! Wow - I can cook through these examples now. Do each example. Change some numbers and do the problem on paper. Watching Schweser do it and doing it yourself are very different.
12) Concept checker - What a joke. I have this down.
If you do your studying like that, I will absolutely guarantee you won't have to memorize anything. You will understand everything. You will get straight > 70% on your exams and you will get your charter.
