MEMORANDUM

To: Investment Company

From: Heng Luo
Date: 3/20/2018
Subject: Investment Information

Regression equation: Earnings Per Share = 4.20026 - 0.066309(Operation Margin) + 2.12E-

10(Earning Before Tax) -0.00925(Pre-Tax Margin)

Per your request, this memo is a report on investment information and data analysis. The content
will help you to identify which company to invest in based on predicting Earned Per Share. This
memo will include data analysis by the most related data, explanation for data, and giving final
predicting regression equation.

According to the table, the final predicting Regression Equation is Earnings Per Share = 4.20026
- 0.066309(Operation Margin) + 2.12E-10(Earning Before Tax) -0.00925(Pre-Tax Margin).

The three most related key factors that I found from the data sheet is Operation Margin, Earning
Before Tax, and Pre-Tax Margin.

In this Regression Equation, the Operation Margin increases by $1, the Earnings Per Share
decreases by $0.066. The Earning Before Tax increase by one billion dallors, the Earnings Per
Share increases $0.212. The Pre-Tax Margin increases by $1, the Earning Per Share decreases by
$0.00925.

According to the summary table, R Square is 0.195, it means that 19.5% of variation in Earning
Per Share in accounted for using Operation Margin, Earning Before Tax, and Pre-Tax Margin.
The Standard Error Se is 4.235, it means that the Earning Per Shares are off by an average of
$4.235
Test of Joint Significance
Ho: B1=B2=B3=0
Ha: at least one coefficient is not zero

According to the Regression table, the large Ftest =124.50 and small p-value that is very close to
zero in the ANOVA table. Thus, we can reject the null and conduct that there is at least one
coefficient is not zero.

Test of Individual Significance

H0: βj = 0
HA: βj ≠ 0

Coefficient means that how many degrees the predicted Y value will influence by explanatory X
value.

If looking at the P-value for each individual, both Operating Margin, Pre-tax Margin, and
Earning Before Tax are smaller than 0.05 and very closed to zero, so we can reject the null and
conduct that Operating Margin Pre-tax Margin Earning, and Earning Before Tax are significant.
This means that they are significant predictors of Earnings Per Share.

This data is showing that the companies with low Earning Before Tax have a wider range of
Earnings Per Share.
This data is showing that the companies with high Operating Margin have a wider range of
Earnings Per Share. Referring to t-test, it proves that Operating Margin is a significant predictor.

This data is showing that the companies with high Pre-tax Margin n have a wider range of
Earnings Per Share. Referring to t-test, it proves that Pre-tax Margin is a significant predictor.

Overall, this memo conduced regression model to analysis the correlation between Earning Per
share and other three key factors (Operation Margin, Earning Before Tax, and Pre-Tax Margin).
Also, it includes the Regression equation for calculating a predicting Earning Per Share.
According to the information, Operation Margin is the best for predicting Earning Per Share and
also it is important to look at this point before investing in. If you have any question or need
additional information, please feel free to contact me at hengluo@email.arizona.edu.