INDUSTRY MULTI-REGRESSION ANALYSIS

In this regression model we have taken three inputs and tried to find out the relative
importance of each of the three independent variables that are;

1) Growth
2) Earnings Per Share(Return)
3) Beta(Risk)

Through these three independent variables we have tried to find out the relationship with
the dependent variable i.e the P/E ratio.

The results indicate –

P/E = a + b1(beta)+ b2(eps) +b3(growth)

Where b1 b 2 & b3 are the coefficients

P/E= 35.42 -73.51(beta) + 0.015(eps) – 0.0118(growth)

R square value 0.058 indicates that the variation in the P/E ratio cannot be directly
attributable to these factors. This value shows that the explained variation is very less

Intercept- This value tells about the constant value of dependent variable even when the
independent values become zero. This is irrespective of any factor.

Beta Coefficient- It tells us what will be the change in dependent variable if we change the
beta by 1unit or %.

Similarly the remaining 2 coefficients also define the same degree of change in the
dependent variable due to change in the independent variable. Among all the coefficient
values we see that the beta coefficient is highest as compared to others. So we can say that
beta or the risk is the most important factor in determining the P/E ratio of the respective
companies.

The risk usually has negative impact on the business so we can infer that the coefficient
value is negative. The coefficient value(-73.51) has high impact on the P/E ratio. For every
single unit of change in beta there will be a corresponding 73.51 value change in the P/E.