Tuesday, September 8, 2009

Graph 4: Equity Valuation using accounting numbers

The statistical informational data was from LUVLE course website:
It can be gleaned in Graph 4 above, that there were seven Firms who makes a remarkable inflation in terms of ratio analysis. Firm 513 got the highest inflation of Assets turnover, Profit margin and Equity Multiplier which range almost 6000 and followed by Firm 129, range above 5000. Third Firm who got Assets turnover, Profit margin and Equity Multiplier is 671, then 702, 607, 94 and 478.
Summary of the graphs were scrutinized by the researcher. It was found out that only three Firms got the high inflation. These Firms were Firm 702, Firm 671 and Firm 478. This implies that the Firms are performing well in the stock market place and they have good inflation elasticity. It was notable that some companies were also trying their best to be on top such as Firm 513, Firm 129, Firm 607, Firm 624, and Firm 165. This can be seen in their inflation elasticity variables.
The Analysis of Variance was used to determine if the Assets turnover, Profit margin, Equity Multiplier, and Return on total assets have an effect on the Equity Valuation. The null hypothesis is that the Assets turnover, Profit margin, Equity Multiplier, and Return on total assets have no effect on the Equity Valuation.
Thus, all independent variables have no significant effect on the equity valuation: Ho: μ1 = μ2 = μ3= μ4, or Ho. We assume that there should be at most five percent chance of erroneously rejecting a true Ho. Thus we specify a level of significance of 0.05. We used F-distribution and an Analysis of variance (ANOVA)test , and next step is to define the rejection or critical region. The degree of freedom numerator value is 4 and the degree of freedom denominator value is 706. So with α = 0.05, the critical value of F in this analysis of variance test is F0.05 (4,706) = 2.73.
The final statistical decision is rejected the null hypothesis. Since computed F (F c) is greater than Tabulated F (Ft), Ho is rejected and thus, all the independent variables of this study have a significant effect on the equity valuation should be considered as acceptance of the alternative hypothesis. The result of the “Analysis of Variance” (ANOVA) shows that the computed F (21.875) is greater than the tabular values of F-statistics at 0.05 degree of freedom (2.37).
The Regression results are as follows: the unbiased estimator of the variance of the error in the multiple regression model is equal to 2740.285. There is small value of MSE denominator than the MSE numerator (59944.883) so the estimator is a good fit of the regression. Standard error of estimate is equal to 52.34773. Multiple coefficient of determination is .105. (R^2) and an adjusted multiple coefficient of determination is equal to .110 (R2) showed that the data produced a good predictions. This was stated because the adjusted R^2 is closer to the unadjusted R^2.

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