Multivariate Analysis: and the Debt Ratio
Although a great deal can be learnt from univariate analysis of the kind discussed in previous chapters, it is desirable, particularly when dealing with economic data, to try to consider sets of variables in combination. Firstly, as Singh pointed out,1 two firms with the same profitability could show different rates of return if they had different growth rates. Secondly, equally healthy firms faced with a trade-off between growth and profitability might well choose different points on the trade-off; and the choice might not be (though it could be) systematically related to competition policy. Thirdly, a poor performance by a firm on a set of related variables may discriminate better between firms than a poor performance on a single variable considered in isolation.
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- 1.A. Singh, Take Overs: Their Relevance to the Stock Market and the Theory of the Firm (London: Cambridge University Press, 1971) p. 95.Google Scholar
- 2.For discussions of the use of discriminants see, in particular, Singh, op. cit.; D. F. Morrison, Multivariate Statistical Methods 2nd edn. (New York: McGraw-Hill, 1976) Ch. 6.Google Scholar
- See however, the much more detailed study by G. Whittington, The Prediction of Profitability (London: Cambridge University Press, 1971) pp. 151–98.Google Scholar