Your Ask Joey ™ Answer

Should I memorize the formulas for BEC?

In short, the answer to that question is NO! Yes, you need to be familiar with the formulas and you could see MCQs that require you to plug numbers into a formula. Is there a better way to remember than formulas than memorizing them? The answer to that questions is YES.

Always think beyond the formula and more about why a business owner or investor would calculate the ratio. The ratios are important because they can be used to make business decisions or evaluate the health of a business.

For example, if we think about the inventory turnover ratio, is a ratio of 8 times good? Who knows, right? But what if we compare it to an inventory turnover ratio of 10? How would that benefit the business? As you can see, if cost of sales remained the same but the ratio increased from 8 to 10 times, then the company will have more free cash from selling through their inventory more quickly.

So if you can get to that level of comprehension, then it makes the formula much easier to remember because you now have thought through a scenario in which the formula would be useful.

The Universal CPA course uses explanation videos and visual learning to help you truly understand these formulas at a deeper level. Sign up for a free 7 day trial here.


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