Sds Wac Report 1

Exam Number: F09070
Word Count: ……
CRANFIELD SCHOOL OF MANAGEMENT
Full Time MBA Programme 2009/10
Term: 1
Part: 1
STRATEGIC DECISION SCIENCES
REPORT
This assessment/report is all my own work and conforms to the University’s

regulations on plagiarism

An identical copy of this document has been submitted to the Turnitin system

STRATEGIC DECISIONS REPORT
Contents Page
Executive Summary 1
1. Introduction 2
2. Analysis of Explanatory Variables 2
Appendices 5
Appendices 5
1 Dummy Variables 5
2 Data used for regression analysis for CEO’s remuneration 6
3 Results achieved 7
4 Interpreting the Regression Analysis Coefficients 8
4.1 T Statistics 8
4.2 Multiple Coefficient of Determination R2 8
4.3 Adjusted multiple coefficient of determination 9
4.4 F statistic 9
5 Multicollinearity 10
6 Analysing the non linear relationship of Turnover on CEO’s earnings 11
7 Law of diminishing returns 12
8 Data used for regression analysis 13
8.1 Results 14
9 Analysis by eliminating highly correlated and insignificant variables 15
9.1 Eliminating Market Share (MS) only 15
9.2 Eliminating Total Costs (TC) only 16

9.3 Eliminating Total Profits (TP) only 17
9.4 Eliminating TP and MS 18
9.5 Eliminating TP, TC and MS 19
9.6 Eliminating TC, TP, PM, MS AND SP 20
9.7 Eliminating TC, PM, MS AND SP 21
10 Analysing the non linear relationship of total profits to Earnings 22
11 Data used 23
11.1 Results 24
12 Analysis by eliminating highly correlated as well as insignificant variables.25
12.1 Eliminating TO 25
12.2 Eliminating TO, PM and MS 26
12.3 Eliminating TO, TC, PM and MS 27
12.4 Eliminating TO, TC, PM, MS and SP 28
13 Data used for analysing the impact of share options on share price 29
13.1 Results achieved 30

Results achieved
Executive Summary
Page 1
1. Introduction
This report is submitted to Michael A Schmidt, consultant of Compensation Resources Inc. The
report analyses the Medical Products industry using linear regression and determines the
variables that explain the variation in the earnings of the CEO’s in the industry. It also provides
statistical evidence to show that Carl E Riefenberg’s earnings are lower than might be expected
of a CEO in his position. This report will show that the existence of a share option scheme is a
positive influence on a CEO’s earnings as well on a company’s share price in the Medical
Products industry.
2. Analysis of Explanatory Variables

The data provided for investigation by Compensation Resources Inc was subjected to
regression analysis (Refer Appendix 2).In order to understand the impact of share options of the
earnings of the CEO; a dummy variable (Refer Appendix 1) was added to the existing data set.
Initial regression test was conducted using this dataset. (Refer Appendix2). At the first glance
the R2 and the adjusted R2 values appear to be healthy. (Refer Appendix 3). Further analysis
has resulted in discarding the initial linear regression solution because it showed that the
Turnover (TO), Profit Margin (PM), Market Share (MS) and Share Option (SO) have a negative
correlation to the earnings of the CEO which is clearly illogical. Total Costs (TC) shows a
positive correlation to Earnings which is another contradiction. This suggests that two or more
explanatory variables used display a very high multicollinearity. (Refer Appendix4 and 5)
The secondary analysis showed a clear non-linear relationship of the earnings with the
Company turnover. (Refer Appendix 6). The correlation between the earnings of the CEO and
company’s turnover indicate that as the revenues of the company increase the Earnings of the
CEO do not increase proportionately. This pattern indicates that the Earnings of the CEO are
not only positively correlated to the turnover (TO) of the company but also negatively co related
to the square of the turnover of the company. (Refer Appendix 7). The data was modified to
include square of turnover. The linear regression test applied to this new set of data showed
different results. (Refer Appendix 8). There is an improvement on the R2, the adjusted R2 and
the F values. However the Total Profit (TP), Profit Margin (PM) and Market Share (MS) show a
negative correlation with Earnings. This means that as Profit increases the earnings would
decrease. The t-statistical values of these variables (Total Profit, Profit Margin and Market
Share) are also very low compared to the t-critical value (t-critical =~2). The logical conclusion is
that Total Profit, Profit Margin and Market Share are closely correlated with one or more of the
other explanatory variable in the equation and therefore the model was decided to be
inadequate and rejected. (Refer Appendix 8.1).
The Correlation matrix (Refer Appendix 8.1) of the data used showed a high correlation
between Market Share and Total Profit of around 0.976. In the next step Market Share was
dropped from the data and the linear regression was run again. (Refer Appendix 9.1). There
was no remarkable change in the R2, the adjusted R2 and the F values but the t-statistical
Page 1
values of Total Cost, Profit Margin, Share Price is still insignificant (i.e. t-statistical < t-critical,
where t-critical =~2). The negative correlation between Earnings and Total Profit cannot be
explained and therefore the linear regression is rejected.
Following this trial and error method of elimination of data from the initial set and rerunning of
the linear regression, a model was observed in which the explanatory variables used were
Turnover, square of Turnover, annual growth rate and Total Profit. This model was by far the
best model with a R2 value of 0.96, adjusted R2 value of 0.957 and a high F value of 263.7734.
(Refer Appendix 9.7). The t-statistical of all the explanatory variables were checked and found
to be significant. The coefficients of the explanatory variables were as expected and showed a
positive correlation with earnings except for square of Turnover costs which was expected to
have a negative correlation explaining the non linear relationship of Turnover and Earnings.
In order to further tune the model additional tests were done. In the tests what was noticed is
that the Earnings shared a non linear relationship with Total Profit as well. (Ref Appendix 10)
Total Profit (TP) = Turnover (TO) – Total Costs (TC)
Therefore Total profit took into consideration the effects of Total Turnover and Total Costs.
Moreover the performance of a CEO can be judged better by benchmarking against profits
which could lead to lower costs as well as higher sales. A linear regression was run on a model
which had Total Profit, square of Total Profit, Profit Margin, Market Share (MS), Share Option
(SO), Turnover (TO) and Total Costs TC). Although the R2 and the adjusted R2 and the F values
were high it still showed a negative correlation of Turnover to Earnings of the CEO. The T-
statistical values of TO, TC, TP, PM, MS, SP and SO were lower than the T-critical =~ 2 which
implied that the contribution of these factors to the earnings of the CEO were insignificant. The
results were not healthy and the model was dropped. Finally a model was arrived at which had
Total Profit, Total profit square, annual growth rate (GR), Share Option (SO). All the coefficients
of the model followed the expected correlation with Earnings. It also resulted in higher values of
R2 = 0.96 and the adjusted R2 and the F values
Page 2
Appendices
1 Dummy Variables
In regression analysis the dependent variable is sometimes influenced by a qualitative

variable; that is, one that reflects the influence of an event that is either present or not
present. Such variables are known as dummy variables. Dummy variables usually take
the values of either 1 or 0 because of which it can be used to represent sub groups in a
study. Consider the following equation
Where Yi is the dependent variable, Di is the dummy variable series. It is binary series
which takes the values of either 0 or 1. Dummy variables are widely used for dealing
with unique events. It takes into account the outliers that might occur resulting in an
accurate estimation.
Page 1
2 Data used for regression analysis for CEO’s remuneration
E arnin gs ($ )T u rn0 ve r($ m To

n) ta l C os ts ($m Gn )ro w th(% )P ro fit s ($m n)
P ro fit M argMina rk et s h are
S h are P ric eS©ha re op tio n
1 C H E M -L A B S G R O U P 2, 3 26 ,6 00 18 , 19 8 1 5, 89 3 12 . 3 2 ,30 5 0. 1 3 1 6 .4 0 37 0 1
2 BECKERMAN 1, 9 43 ,1 50 17 , 00 8 1 5, 11 1 5. 5 1 ,89 6 0. 1 1 1 5 .3 0 17 5 0
3 B O S TO N S C IE N TIF IC 1, 9 08 ,2 94 16 , 31 6 1 4, 76 4 10 . 5 1 ,55 2 0. 1 0 1 4 .6 5 15 9 0
4 B E C TO N D IC K IN S O N 2, 1 03 ,4 60 15 , 74 8 1 4, 34 7 10 . 5 1 ,40 1 0. 0 9 1 4 .1 0 29 5 1
5 O M E G A TE K N IK A 2, 0 12 ,5 80 10 , 22 6 9 ,2 14 10 . 4 1 ,01 2 0. 1 0 9 .20 15 5 0
6 V IA S Y S H E A L TH C A R E 1, 0 00 ,0 00 7, 8 40 6 ,9 88 1. 0 852 0. 1 1 7 .05 97 0
7 N E P H E W & S M ITH 2, 0 43 ,8 34 5, 7 77 4 ,8 76 12 . 0 901 0. 1 6 5 .20 28 2 1
8 P A R K H O U S E H E A LTH C A R E 1, 8 17 ,0 96 3, 4 00 2 ,6 18 8. 9 782 0. 2 3 3 .06 26 5 1
9 C O N V A TE C 1, 0 70 ,4 54 2, 1 87 1 ,8 55 5. 2 332 0. 1 5 1 .97 50 0
10 H U N TLE IG H TE C H 0 LO G Y 1, 4 42 ,4 34 1, 8 21 1 ,2 36 10 . 3 585 0. 3 2 1 .64 29 9 1
11 F IS H E R M E D IC A L 56 4, 85 4 1, 2 15 1 ,0 59 -7. 4 156 0. 1 3 1 .09 30 0
12 TA K A R A B E L M O N T 69 7, 69 8 1, 0 55 88 0 6. 0 175 0. 1 7 0 .95 87 0
13 C U S TO M S H O L D IN G S 55 0, 84 2 92 0 79 8 1. 4 122 0. 1 3 0 .83 42 0
14 E LE K TA LIM ITE D 41 7, 97 0 79 8 72 0 5. 6 78 0. 1 0 0 .72 51 0
15 M C K E S S O N S O L U TIO N S P LC 75 8, 08 0 59 4 58 4 10 . 2 10 0. 0 2 0 .53 22 4 1
16 G Y R U S G R O U P L IM ITE D 38 2, 75 4 50 9 46 9 -3. 4 40 0. 0 8 0 .46 57 0
17 N H C TE C H 0L O G Y 25 9, 25 8 43 4 39 8 3. 6 36 0. 0 8 0 .39 42 0
18 W H A TM A N H E A L TH 40 6, 66 4 36 9 30 0 7. 6 69 0. 1 9 0 .33 82 0
19 B E Y A R D IA G 0S TIC S 31 1, 77 4 26 3 23 1 10 . 4 32 0. 1 2 0 .24 82 0
20 B E S P A K 58 5, 88 6 26 2 22 5 9. 5 37 0. 1 4 0 .24 22 4 1
21 B R A U N M E D IC A L 18 6, 55 8 25 9 23 0 1. 2 29 0. 1 1 0 .23 73 0
22 TY C O H E A LTH C A R E 58 8, 14 4 25 8 23 3 4. 1 25 0. 1 0 0 .23 20 0 1
23 V A R IA N S Y S TE M S 75 1, 54 6 25 7 20 0 9. 7 57 0. 2 2 0 .23 26 0 1
24 P LE XU S 14 2, 66 2 24 4 19 9 -7. 9 45 0. 1 8 0 .22 50 0
25 C A R D IN A L H E A LTH 30 4, 72 2 24 3 22 4 3. 3 19 0. 0 8 0 .22 54 0
26 A B B O TT D IA B E TE S 45 1, 87 4 24 2 21 5 8. 0 27 0. 1 1 0 .22 64 0
27 M C G H A N 17 7, 43 6 24 1 21 5 -3. 2 26 0. 1 1 0 .22 13 0
28 D R A E G E R 64 1, 44 0 23 9 22 0 8. 1 19 0. 0 8 0 .22 21 1 1
29 A XIS -S H IE LD 13 1, 83 4 23 8 20 5 -7. 9 33 0. 1 4 0 .21 33 0
30 F A N N IN H E A LTH C A R E 16 5, 10 2 23 7 23 4 1. 1 3 0. 0 1 0 .21 25 0
31 K A R L S TO R Z E N D O S C O P Y 14 8, 69 2 23 6 21 6 -9. 7 20 0. 0 8 0 .21 16 0
32 S U R G IC A L O P E R A TIN G S U P P L IE28
S 8, 40 4 22 5 22 4 -3. 5 1 0. 0 0 0 .20 37 0
33 IN TE R S U R G IC A L 17 6, 05 8 22 4 21 2 -8. 4 11 0. 0 5 0 .20 32 0
34 C O O P E R V IS IO N M A N U F A C TU R IN20G8, 46 0 20 8 19 6 -0. 4 11 0. 0 5 0 .19 30 0
35 W . R . S W A N N & C O 45 9, 39 2 20 7 18 9 8. 9 18 0. 0 9 0 .19 65 0
36 E S C H M A N N H O L D IN G S 22 9, 32 0 18 1 15 9 8. 7 22 0. 1 2 0 .16 56 0
37 K IM A L 71 6, 48 0 18 0 15 2 4. 2 28 0. 1 6 0 .16 20 1 1
38 H O LL IS TE R 26 3, 32 6 17 9 13 9 3. 1 40 0. 2 2 0 .16 93 0
39 S H ILO H 33 0, 19 2 17 3 16 3 10 . 5 10 0. 0 6 0 .16 73 0
40 C O D M A N 35 0, 19 2 15 3 14 5 8. 7 8 0. 0 5 0 .14 50 0
41 G U ID A N T 37 9, 67 0 14 0 12 1 9. 3 19 0. 1 4 0 .13 59 0
42 C H A S , B LA TC H F O R D & S O N S 21 1, 24 6 13 3 12 8 2. 6 5 0. 0 4 0 .12 41 0
43 B IO -M E D IC A L R E S E A R C H 26 3, 59 4 13 2 11 5 3. 3 16 0. 1 2 0 .12 43 0
44 O W E N M U M F O R D 16 5, 34 4 11 9 11 1 -2. 9 8 0. 0 7 0 .11 11 0
45 A U D IO M E D IX 31 0, 30 8 11 8 10 9 3. 5 10 0. 0 8 0 .11 46 0
46 K E E LE R 32 4, 33 0 11 1 10 0 5. 8 10 0. 0 9 0 .10 44 0
47 C O R IN R E S E A R C H G R O U P 68 9, 09 8 10 5 98 14 . 2 7 0. 0 7 0 .09 21 4 1
48 K C I D IA G 0 S TIC S 24 7, 55 4 99 89 0. 2 10 0. 1 0 0 .09 21 0
49 IR ID E X 57 3, 95 8 91 78 7. 1 13 0. 1 4 0 .08 21 6 1
50 M E D A E S 53 4, 94 6 90 75 8. 8 15 0. 1 7 0 .08 22 9 1
51 H A E M O N E TIC S 19 3, 80 8 90 82 5. 4 8 0. 0 9 0 .08 37 0
52 S TE R LIN G D IA G 0 S TIC S 31 3, 03 0 82 73 5. 8 9 0. 1 1 0 .07 43 0
53 B IO Q U E LL 57 2, 23 6 75 64 18 . 9 11 0. 1 5 0 .07 24 0 1
54 P R O M E D IC S 28 5, 55 8 71 65 5. 7 7 0. 1 0 0 .06 42 0
55 A D V A N C E D M E D IC A L S O L U TIO N35
S 4, 72 8 71 61 6. 8 10 0. 1 4 0 .06 49 0
56 IN TE G R A N E U R O S C IE N C E S 20 2, 73 6 70 63 2. 7 8 0. 1 1 0 .06 37 0
57 C O LO P LA S T LA B S 27 3, 26 2 61 53 3. 4 8 0. 1 3 0 .05 65 0
58 B IO 0S TIC S 53 9, 69 8 56 48 7. 4 8 0. 1 4 0 .05 22 4 1
59 M E D E X B IO P S 50 0, 13 6 53 43 8. 6 10 0. 1 9 0 .05 23 5 1
Page 1
3 Results achieved
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.959810062
R Square 0.921235354
Adjusted R Square 0.908633011
Standard Error 174774.2988
Observations 59
ANOVA
df SS MS F Significance F
Regression 8 1.78634E+132.23E+1273.10032 6.62261E-25
Residual 50 1.5273E+123.05E+10
Total 58 1.93907E+13
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%Upper 95.0%
Intercept 231968.5502 73403.419613.1601870.002676 84533.44583379403.654684533.44583379403.6546
TO -3779.071146 64261.27771-0.05881 0.95334 -132851.6435125293.5012-132851.6435125293.5012
TC 13154.83039 64098.693080.2052280.838227 -115591.1811141900.8419-115591.1811141900.8419
GR 9279.63463 6160.6495661.5062750.138289 -3094.39394621653.66321-3094.39394621653.66321
TP 14946.32807 64100.93540.2331690.816582 -113804.1873143696.8434-113804.1873143696.8434
PM -325749.9873 658386.5699-0.49477 0.62293 -1648158.305996658.3306-1648158.305996658.3306
MS -10542426.77 3420552.55-3.08208 0.00334 -17412808.63-3672044.914-17412808.63-3672044.914
SP 1745.546005 1843.2279960.9470050.348191 -1956.6863085447.778319-1956.6863085447.778319
SO -69320.7941 296473.7851-0.233820.816081 -664805.9049526164.3167-664805.9049526164.3167
Observations
Coefficients of Turnover (TO), Profit Margin (PM), Market Share (MS) and Share
Option (SO) are negative which is not realistically plausible.
Tstat values of TO, PM, Share Price (SP) and SO are insignificant.
Correlation
ERN TO TC GR TP PM MS SP SO
ERN 1
TO 0.858617 1
TC 0.850262 0.999637 1
GR 0.473556 0.256353 0.252649 1
TP 0.902937 0.976174 0.96997 0.279434 1
PM 0.264465 0.008009 -0.00672 0.227752 0.126423 1
MS 0.858699 0.999997 0.999593 0.256324 0.976501 0.008237 1
SP 0.714164 0.453775 0.444385 0.641851 0.517279 0.427682 0.45386 1
SO 0.439983 0.128664 0.120829 0.522695 0.188342 0.349272 0.12857 0.914099 1
Page 1
4 Interpreting the Regression Analysis Coefficients
The statistical significance of a regression model can be explained by analysing the

values of parameters mentioned below:
4.1 T Statistics
The testing of the statistical significance of the individual coefficients estimated by

multiple regression is identical to the procedure for the basic two–variable model. The
null hypothesis is that βj= 0 and, the value of the t statistic for each of the coefficients is
calculated thus:
t = (bj - βj)/sbj where sbj is the standard error of bj. Since in null hypothesis βj reduces to
zero, the equation becomes t = bj/sbj.
As k measures the number of explanatory variables, so the degrees of freedom, N – k –

1, will fall as the equation’s number of explanatory variables increases. If the null-
hypothesis is to be rejected, the calculated t statistic must be larger than the critical
value of t given in the t tables.
4.2 Multiple Coefficient of Determination R2
This provides a measure of the overall explanatory power of a regression model. This
clearly shows how much the variation in y (the dependent variable) is explained by joint
variation in all of the independent variable. The value of R2 is given by
R2 = SSR/SST = 1- (SSE/SST)
Where SSR is the sum of squares of regression and SST is the total sum of squares. The
range of R2 is from 0 to 1. If R = 1, then 100% of the total variation in the dependent
variable has been explained by the model. The fit of the model is said to be ‘better’ the
closer the value of R2 is to 1.
4.3 Adjusted multiple coefficient of determination
Adding additional independent variables to a multiple regression model will never lead
to a decrease in the value of R2 – in general R2 will increase and at worst will remain
Page 1
unchanged. To compare two R2 models, it is necessary to take into account the number
of x variables included in each model. This is done by computing an adjusted R2, in
order to avoid overestimating the impact of any additional independent variable on the
amount of explained variation. This is measured as
R2 = 1- (1- R2) n-1n-k-1
Where n is the sample size and k is the number of independent variables. This
adjustment is especially important if the sample size is small.
4.4 F statistic
The F statistic is a guide to the equation’s overall worth as it tests the hypothesis that
none of the model’s explanatory variables help to explain the variation in Y, i.e., it tests
the joint null hypothesis that β1 = β2 =..... βk = 0. The F statistic with N - k - 1degrees of
freedom is derived:
Fk, N – k – 1 = ( R2/1- R2)* n-k-1n-kk
If R2 is close to zero then the F statistic would also be close to zero. An F statistic, not
significantly different from 0 leads us to conclude that the independent variables do
little to explain the variation in Y about its mean i.e., the whole model is inadequate. F
statistic is the measure of reliability of the model.
Reference:
Michael C. Fleming & Joseph G Nellis (2000), Principles of Applied Statistics,
Thomson Learning, UK
SDS Session notes [Session 15]
Page 2
5 Multicollinearity
Multicollinearity refers to the situation in which some or all of the explanatory variables
are very highly correlated with one another and are therefore not independently
distributed. A high degree of multicollinearity may cause several problems with respect
to the following aspects of regression analysis.
• Estimated regression coefficients may not be uniquely determined;
• Estimates of the coefficients may fluctuate markedly from sample to sample;
• Less importance may be placed on the relative importance of the individual
explanatory variables as indicated by the regression coefficients.
The classic way of dealing with multicollinearity is to discard variables from
regression analysis. If two variables are highly correlated, use of either one in the
regression (rather than both) can capture the effect of both.
Reference:
Michael C. Fleming & Joseph G Nellis (2000), Principles of Applied Statistics,
Thomson Learning, UK
1 Analysing the non linear relationship of Turnover on CEO’s

earnings
As can be seen from the graph there is a non linear relationship that exists between the
earnings and the turnover. In order to correctly predict the earnings we have to consider
the non linearity. This can be achieved by taking into account squared turnover values
as one of the explanatory variables.
Page 2
2 Law of diminishing returns
“The law of diminishing returns states that as equal quantities of one variable factor are
increased, while other factor inputs remain constant, ceteris paribus, a point is reached
beyond which the addition of one more unit of the variable factor will result in a
diminishing rate of return and the marginal physical product will fall.” In the context of
regression analysis, there is not always a linear relationship between the dependent
variable and the independent variable. The dependent variable increases or decreases
proportionately to an increase or decrease in the independent variable till a point is
reached after which the increase will not be proportional. This gives rise to a non linear
relationship between the dependent variable and the independent variable.
In order to model the non linear relationship, the equation explaining the dependent
variable (Y = a + bX) is modified to replace the variables in the regression equation with
functions of the original variables, Y = a + bX+cX2.
Source
http://www3.wabash.edu/econometrics/EconometricsBook/chap6.htm
http://www.economyprofessor.com/economictheories/law-of-diminishing-returns.php
Page 3
3 Data used for regression analysis
E a rn in g s ($ )Tu rn 0 ve r($ mS nq)u a re d T O T o t a l C o s t s ($ Gm ron )w t hP ro fit s ($ mP nro) fi t M a rgM ina rk e t s hSa hrea re P ricSeh©a re o p t io n
1 C H E M -L A B S G R O U P 2,32 6,600 1 8,198 3 31 16 72 04 1 5, 89 3 1 2 .3 2 ,3 0 5 0 .1 3 1 6.40 370 1
2BECKERM AN 1,94 3,150 1 7,008 2 89 27 20 64 1 5, 11 1 5 .5 1 ,8 9 6 0 .1 1 1 5.30 175 0
3 B O S TO N S C IE N T IF IC 1,90 8,294 1 6,316 2 66 21 18 56 1 4, 76 4 1 0 .5 1 ,5 5 2 0 .1 0 1 4.65 159 0
4 B E C TO N D IC K IN S O N 2,10 3,460 1 5,748 2 47 99 95 04 1 4, 34 7 1 0 .5 1 ,4 0 1 0 .0 9 1 4.10 295 1
5 O M E G A T E K N IK A 2,01 2,580 1 0,226 1 04 57 10 76 9, 21 4 1 0 .4 1 ,0 1 2 0 .1 0 9 .2 0 155 0
6 V IA S Y S H E A L T H C A R E 1,00 0,000 7,84 0 61465600 6,988 1 .0 852 0 .1 1 7 .0 5 97 0
7 N E P H E W & S M ITH 2,04 3,834 5,77 7 33373729 4, 87 6 1 2 .0 901 0 .1 6 5 .2 0 282 1
8 P A R K H O U S E H E A L TH C A R E 1,81 7,096 3,40 0 11560000 2,618 8 .9 782 0 .2 3 3 .0 6 265 1
9 C O N V A TE C 1,07 0,454 2,18 7 4782969 1,855 5 .2 332 0 .1 5 1 .9 7 50 0
1 0H U N TL E IG H TE C H 0 L O G Y 1,44 2,434 1,82 1 3316041 1, 23 6 1 0 .3 585 0 .3 2 1 .6 4 299 1
1 1F IS H E R M E D IC A L 56 4,854 1,21 5 1476225 1 , 0 5 9 -7 . 4 156 0 .1 3 1 .0 9 30 0
1 2T A K A R A B E L M O N T 69 7,698 1,05 5 1113025 880 6 .0 175 0 .1 7 0 .9 5 87 0
1 3C U S TO M S H O L D IN G S 55 0,842 920 846400 798 1 .4 122 0 .1 3 0 .8 3 42 0
1 4E L E K T A L IM IT E D 41 7,970 798 636804 720 5 .6 78 0 .1 0 0 .7 2 51 0
1 5M C K E S S O N S O L U TIO N S P L C 7 5 8 , 0 8 0 594 352836 58 4 1 0 .2 10 0 .0 2 0 .5 3 224 1
1 6G Y R U S G R O U P L IM ITE D 38 2,754 509 259081 469 -3 . 4 40 0 .0 8 0 .4 6 57 0
1 7N H C T E C H 0 L O G Y 25 9,258 434 188356 398 3 .6 36 0 .0 8 0 .3 9 42 0
1 8W H A T M A N H E A L T H 40 6,664 369 136161 300 7 .6 69 0 .1 9 0 .3 3 82 0
1 9B E Y A R D IA G 0 S T IC S 31 1,774 263 69169 23 1 1 0 .4 32 0 .1 2 0 .2 4 82 0
2 0B E S P A K 58 5,886 262 68644 225 9 .5 37 0 .1 4 0 .2 4 224 1
2 1B R A U N M E D IC A L 18 6,558 259 67081 230 1 .2 29 0 .1 1 0 .2 3 73 0
2 2T Y C O H E A L T H C A R E 58 8,144 258 66564 233 4 .1 25 0 .1 0 0 .2 3 200 1
2 3V A R IA N S Y S T E M S 75 1,546 257 66049 200 9 .7 57 0 .2 2 0 .2 3 260 1
2 4P L E XU S 14 2,662 244 59536 199 -7 . 9 45 0 .1 8 0 .2 2 50 0
2 5C A R D IN A L H E A L T H 30 4,722 243 59049 224 3 .3 19 0 .0 8 0 .2 2 54 0
2 6A B B O T T D IA B E T E S 45 1,874 242 58564 215 8 .0 27 0 .1 1 0 .2 2 64 0
2 7M C G H A N 17 7,436 241 58081 215 -3 . 2 26 0 .1 1 0 .2 2 13 0
2 8D R A E G E R 64 1,440 239 57121 220 8 .1 19 0 .0 8 0 .2 2 211 1
2 9A XIS - S H IE L D 13 1,834 238 56644 205 -7 . 9 33 0 .1 4 0 .2 1 33 0
3 0F A N N IN H E A L T H C A R E 16 5,102 237 56169 234 1 .1 3 0 .0 1 0 .2 1 25 0
3 1K A R L S T O R Z E N D O S C O P Y 14 8,692 236 55696 216 -9 . 7 20 0 .0 8 0 .2 1 16 0
3 2S U R G IC A L O P E R A TIN G S U P P L2 IE
8 8S, 4 0 4 225 50625 224 -3 . 5 1 0 .0 0 0 .2 0 37 0
3 3IN T E R S U R G IC A L 17 6,058 224 50176 212 -8 . 4 11 0 .0 5 0 .2 0 32 0
3 4C O O P E R V IS IO N M A N U F A C T U R2 0IN8G, 4 6 0 208 43264 196 -0 . 4 11 0 .0 5 0 .1 9 30 0
3 5W . R . S W A N N & C O 45 9,392 207 42849 189 8 .9 18 0 .0 9 0 .1 9 65 0
3 6E S C H M A N N H O L D IN G S 22 9,320 181 32761 159 8 .7 22 0 .1 2 0 .1 6 56 0
3 7K IM A L 71 6,480 180 32400 152 4 .2 28 0 .1 6 0 .1 6 201 1
3 8H O L L IS T E R 26 3,326 179 32041 139 3 .1 40 0 .2 2 0 .1 6 93 0
3 9S H IL O H 33 0,192 173 29929 16 3 1 0 .5 10 0 .0 6 0 .1 6 73 0
4 0C O D M A N 35 0,192 153 23409 145 8 .7 8 0 .0 5 0 .1 4 50 0
4 1G U ID A N T 37 9,670 140 19600 121 9 .3 19 0 .1 4 0 .1 3 59 0
4 2C H A S , B L A T C H F O R D & S O N S 2 1 1 , 2 4 6 133 17689 128 2 .6 5 0 .0 4 0 .1 2 41 0
4 3B IO -M E D IC A L R E S E A R C H 26 3,594 132 17424 115 3 .3 16 0 .1 2 0 .1 2 43 0
4 4O W E N M U M F O R D 16 5,344 119 14161 111 -2 . 9 8 0 .0 7 0 .1 1 11 0
4 5A U D IO M E D IX 31 0,308 118 13924 109 3 .5 10 0 .0 8 0 .1 1 46 0
4 6K E E L E R 32 4,330 111 12321 100 5 .8 10 0 .0 9 0 .1 0 44 0
4 7C O R IN R E S E A R C H G R O U P 68 9,098 105 11025 98 1 4 .2 7 0 .0 7 0 .0 9 214 1
4 8K C I D IA G 0 S T IC S 24 7,554 99 9801 89 0 .2 10 0 .1 0 0 .0 9 21 0
4 9IR ID E X 57 3,958 91 8281 78 7 .1 13 0 .1 4 0 .0 8 216 1
5 0M E D A E S 53 4,946 90 8100 75 8 .8 15 0 .1 7 0 .0 8 229 1
5 1H A E M O N E TIC S 19 3,808 90 8100 82 5 .4 8 0 .0 9 0 .0 8 37 0
5 2S T E R L IN G D IA G 0 S TIC S 31 3,030 82 6724 73 5 .8 9 0 .1 1 0 .0 7 43 0
5 3B IO Q U E L L 57 2,236 75 5625 64 1 8 .9 11 0 .1 5 0 .0 7 240 1
5 4P R O M E D IC S 28 5,558 71 5041 65 5 .7 7 0 .1 0 0 .0 6 42 0
5 5A D V A N C E D M E D IC A L S O L U T IO3 5N 4S, 7 2 8 71 5041 61 6 .8 10 0 .1 4 0 .0 6 49 0
5 6IN T E G R A N E U R O S C IE N C E S 2 0 2 , 7 3 6 70 4900 63 2 .7 8 0 .1 1 0 .0 6 37 0
5 7C O L O P L A S T L A B S 27 3,262 61 3721 53 3 .4 8 0 .1 3 0 .0 5 65 0
5 8B IO 0 S TIC S 53 9,698 56 3136 48 7 .4 8 0 .1 4 0 .0 5 224 1
5 9M E D E X B IO P S 50 0,136 53 2809 43 8 .6 10 0 .1 9 0 .0 5 235 1
Page 3
3.1 Results
SUM M A RY OUTPUT
M ultiple R 0.982463814
R Square 0.965235145
Adjusted R Square0.958849763
Observations 59
AN OVA
Regression 9 1.87166E+13
2.08E+12151.16326851.36552E-32
Residual 49 6.74115E+11
1.38E+10
Total 58 1.93907E+13
CoefficientsStandard Errort Stat P-value Low er 95% U pper 95%Low er 95.0% U pper 95.0%
Intercept 203136.5513 49397.384454.1122940.00014907103868.7926 302404.31103868.7926 302404.31
TO 13635.75535 43182.827750.3157680.753519682-73143.38434100414.895-73143.38434100414.895
SquaredTO -0.008143819 0.00103413-7.875052.96752E-10-0.010221981-0.006065658
-0.010221981
-0.006065658
TC -8677.202653 43106.29654-0.2013 0.84129903-95302.5471177948.1418 -95302.5471177948.1418
GR 11265.01902 4142.1320862.7196180.009016809 2941.0931119588.944932941.0931119588.94493
TP -7423.271465 43112.24207- 0.172180.864001472-94060.56392
79214.02099
-94060.56392
79214.02099
PM -194790.1074 442160.4089- 0.440540.661482256-1083344.699
693764.4844
-1083344.699
693764.4844
MS -5411254.288 2386236.11-2.267690.027792776-10206575.19-615933.3813
-10206575.19
-615933.3813
SP 646.9502576 1244.8438990.5197040.605609892-1854.657173148.557685-1854.657173148.557685
SO 147649.0924 200864.04630.735070.465800728-256002.3134 551300.4983
-256002.3134
551300.4983
Coefficients of TP, PM and MS are negative which is not possible in reality.

Tstat values of TP, PM, MS, SP and SO are insignificant.
Page 3
Correlation
ERN TO SQTO TC GR TP PM MS SP SO
ERN 1
TO 0.858617 1
SQTO 0.7748730.975672 1
TC 0.8502620.9996370.976568 1
GR 0.4735560.2563530.2452420.252649 1
TP 0.9029370.9761740.942348 0.969970.279434 1
PM 0.2644650.008009-0.03756-0.006720.2277520.126423 1
MS 0.8586990.9999970.9757030.9995930.2563240.9765010.008237 1
SP 0.7141640.4537750.4312660.4443850.6418510.5172790.427682 0.45386 1
SO 0.4399830.1286640.1218870.1208290.5226950.1883420.349272 0.128570.914099 1
Page 3
4 Analysis by eliminating highly correlated and insignificant

variables
4.1 Eliminating Market Share (MS) only
SUM M ARY OUTPUT
M ultiple R 0.980605248
R Square 0.961586653
Observations 59
ANOVA
2.33E+12156.4539 1.19775E-32
Residual 50 7.44862E+11
1.49E+10
Total 58 1.93907E+13
CoefficientsStandard Errort Stat P-value Low er 95%Upper 95%

Low er 95.0%
U pper 95.0%
Intercept 185766.7324 50781.191863.658180.000611 83769.7088287763.883769.71287763.8
TO 7791.133308 44855.95120.1736920.862809-82304.69441 97886.96-82304.797886.96
SQTO -0.008784158 0.001035221-8.485292.98E-11-0.010863461-0.0067-0.01086 -0.0067
TC -7638.782281 44853.88937-0.17030.865459 -97730.468782452.9-97730.5 82452.9
GR 12497.80587 4273.019719 2.9248180.005169 3915.1933521080.423915.19321080.42
TP -6781.234506 44861.63995-0.151160.880459-96888.4884383326.02-96888.583326.02
PM 205109.7224 421934.5212 0.4861170.629008-642370.68811052590 -6423711052590
SP -122.1648603 1246.379142-0.098020.922312-2625.5909932381.261-2625.592381.261
SO 292121.4308 198226.9345 1.4736720.146838-106029.0768
690271.9-106029690271.9
Observation
The coefficients of TP and SP are negative which is not realistic
The Tstat values of PM, TC, TP, SP and SO are insignificant.
Page 1
4.2 Eliminating Total Costs (TC) only
SUM M ARY OUTPUT
M ultiple R 0.982449182
R Square 0.965206396
Observations 59
ANOVA
2.34E+12173.38071581.01976E-33
Residual 50 6.74673E+11
1.35E+10
Total 58 1.93907E+13
CoefficientsStandard Errort Stat P-value Lower 95%U pper 95% Low er 95.0%
U pper 95.0%
Intercept 203697.1353 48843.326014.1704190.000120767105592.4297 301801.8105592.4301801.8
TO 4953.623377 2099.0144952.3599760.022219853737.6287693 9169.618737.62889169.618
SQTO -0.008130432 0.001022039 - 7.955111.95167E-10-0.010183257
- 0.00608-0.01018-0.00608
GR 11128.25229 4046.6353512.7500010.0082740383000.346143 19256.163000.34619256.16
TP 1254.979029 250.18115745.0162817.02662E-06752.4753954 1757.483752.47541757.483
PM -203280.3611 435900.6089 - 0.466350.642993563-1078812.484
672251.8-1078812672251.8
MS -5406151.584 2363096.419 - 2.287740.026417948-10152570.33-659733 -1E+07 -659733
SP 668.5681961 1228.2457230.5443280.588635388-1798.435894 3135.572-1798.443135.572
SO 144404.0453 198285.77190.7282620.469850169-253864.6407 542672.7-253865542672.7
Observation
The coefficients of PM and MS are negative which is not realistic.
The Tstat values of PM, SP and SO are insignificant.
Page 1
4.3 Eliminating Total Profits (TP) only
SUMMARY OUTPUT
Multiple R 0.982453
R Square 0.965214
Observations 59
ANOVA
Regression 8 1.87E+13 2.34E+12 173.4206 1.01E-33
Residual 50 6.75E+11 1.35E+10
Total 58 1.94E+13
Coefficients
Standard Errort Stat P-value Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept 203639.4 48830.16 4.17036 0.000121 105561.1 301717.6 105561.1 301717.6
TO 6210.885 2277.641 2.726893 0.008794 1636.107 10785.66 1636.107 10785.66
SQTO -0.00813 0.001022 -7.95843 1.93E-10 -0.01018 -0.00608 -0.01018 -0.00608
TC -1255.08 250.1189 -5.01794 6.99E-06 -1757.46 -752.704 -1757.46 -752.704
GR 11148.3 4046.441 2.755087 0.008163 3020.783 19275.81 3020.783 19275.81
PM -202246 435744.1 -0.46414 0.644562 -1077464 672971.7 -1077464 672971.7
MS -5408556 2362917 -2.28893 0.026343 -1E+07 -662498 -1E+07 -662498
SP 665.4325 1228.114 0.541833 0.59034 -1801.31 3132.172 -1801.31 3132.172
SO 144862.9 198258.9 0.730675 0.468388 -253352 543077.6 -253352 543077.6
Observation
The coefficients of PM and MS are negative which is non-realistic.
Page 1
4.4 Eliminating TP and MS
SUMMARY OUTPUT
R Square 0.961569099
Observations 59
ANOVA
Regression 7 1.86455E+13 2.66E+12 182.2939 8.61E-34
Residual 51 7.45203E+11 1.46E+10
Total 58 1.93907E+13
Coefficients Standard Error t Stat P-value Lower 95%

Upper 95%
Lower 95.0%
Upper 95.0%
Intercept 186233.9785 50199.10019 3.709907 0.000513 85455.08 287012.9 85455.08 287012.9
TO 1010.807856 169.1453173 5.975973 2.24E-07 671.2345 1350.381 671.2345 1350.381
SQTO -0.008773148 0.001022716 -8.57829 1.83E-11 -0.01083 -0.00672 -0.01083 -0.00672
TC -858.7799717 187.8585538 -4.57142 3.11E-05 -1235.92 -481.638 -1235.92 -481.638
GR 12390.61454 4173.204179 2.969089 0.004543 4012.558 20768.67 4012.558 20768.67
PM 198116.1201 415353.0532 0.476982 0.635412 -635740 1031972 -635740 1031972
SP -104.9300745 1229.205422 -0.08536 0.932306 -2572.66 2362.803 -2572.66 2362.803
SO 289510.2628 195571.8996 1.480326 0.144938 -103117 682137.2 -103117 682137.2
Observation
The coefficient of SP is negative, which is non-realistic.
Page 3
4.5 Eliminating TP, TC and MS
SUM M ARY OUTPUT
M ultiple R 0.972533586
R Square 0.945821576
Observations 59
ANOVA
3.06E+12151.2986 4.07792E-31
Residual 52 1.05056E+12
2.02E+10
Total 58 1.93907E+13
CoefficientsStandard Errort Stat P-value Lower 95%U pper 95%

Lower 95.0%
Upper 95.0%
Intercept 70279.50038 50937.508391.379720.173577-31934.08584 172493.1-31934.1172493.1
TO 242.4625862 22.329754310.858275.61E-15 197.6546571 287.2705197.6547287.2705
SQTO -0.009307781 0.001194684 -7.791 2.73E-10-0.011705089- 0.00691-0.01171-0.00691
GR 8177.481712 4785.951571.708643 0.09348-1426.23250317781.2-1426.23 17781.2
PM 652240.0887 474223.4459 1.3753860.174908-299358.85291603839 -2993591603839
SP 1492.402259 1385.748905 1.0769640.286467-1288.306293
4273.111-1288.314273.111
SO 68757.78807 222845.1303 0.308545 0.7589 -378413.6708
515929.2-378414515929.2
Observation
The Tstat values of GR, PM, SP and SO are insignificant.
Page 3
4.6 Eliminating TC, TP, PM, MS AND SP
SUM M ARY OUTPUT
M ultiple R 0.968122616
R Square 0.937261399
Observations 59
ANOVA
Regression 4 1.81742E+134.54E+12201.6785 8.98455E-32
Residual 54 1.21655E+122.25E+10
Total 58 1.93907E+13
CoefficientsStandard Errort Stat P-value Lower 95%Upper 95%

Lower 95.0%
Upper 95.0%
Intercept 192852.2016 27386.555337.0418573.52E-09 137945.4644247758.9137945.5247758.9
TO 264.3091708 20.2480174413.053582.45E-18 223.7143402304.904223.7143 304.904
SQTO -0.010076272 0.001229246-8.197124.75E-11-0.012540761-0.00761-0.01254-0.00761
GR 11999.80635 3977.1354433.0171980.003886 4026.12992819973.48 4026.1319973.48
SO 340114.3035 50612.332436.7199891.17E-08 238642.6871441585.9238642.7441585.9
Observation
All the variables are significant and the coefficients follow the expected sign.
This model explains 93.26% variations of Earnings which is good and has a F statistic
of 201.
Page 3
4.7 Eliminating TC, PM, MS AND SP
SUMMARY OUTPUT
R Square 0.96136652
Observations 59
ANOVA
Regression 5 1.86416E+133.73E+12263.7734 3.72427E-36
Residual 53 7.49131E+111.41E+10
Total 58 1.93907E+13
CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
Intercept 201984.0412 21750.608429.286363 1.05E-12 158357.8465245610.2158357.8245610.2
TO 148.0316097 25.808531875.735763 4.75E-07 96.26625149 199.79796.26625 199.797
SQTO -0.008833784 0.000997356-8.85721 4.91E-12 -0.010834226-0.00683 -0.01083 -0.00683
GR 12288.38189 3150.640982 3.900280.000272 5968.99650518607.775968.99718607.77
TP 897.4815145 156.06834545.750567 4.5E-07 584.4480631210.515584.44811210.515
SO 277092.1713 41560.41126.667214 1.55E-08 193732.5449360451.8193732.5360451.8
Observation
All the variables are significant and the coefficients follow the expected sign.
This model explains 95.77% variations of Earnings which is good and has an F statistic
of 263 which is better that the previous model.
Page 3
5 Analysing the non linear relationship of total profits to Earnings
As can be seen from the graph there is a non linear relationship that exists between the
earnings and the Profits. In order to correctly predict the earnings we have to consider
the non linearity. This can be achieved by taking into account squared Total profit
values as one of the explanatory variables.
Page 3
6 Data used
This is done by having squared Total profits as one of the explanatory variables for the
regression analysis.
Page 3
E a rn in g s ($Tu ) rn 0 ve r($ mT on t)a l C o s t s ($ m

G ro
n ) w t h (% P) ro fit s ($ m Tn P) S q u a reP dro fit M a rg
M ina rk e t s hSa re
h a re P ricSe h©a re o p t io n
1 C H E M -L A B S G R O U P 2 ,3 26 ,6 00 1 8,19 8 15 ,8 93 1 2 .3 2,30 5 5,3 13,02 5 0.1 3 16.40 370 1
2 B ECK ERM AN 1 ,9 43 ,1 50 1 7,00 8 15 ,1 11 5 .5 1,89 6 3,5 94,81 6 0.1 1 15.30 175 0
3 B O S T O N S C IE N TIF IC 1 ,9 08 ,2 94 1 6,31 6 14 ,7 64 1 0 .5 1,55 2 2,4 08,70 4 0.1 0 14.65 159 0
4 B E C T O N D IC K IN S O N 2 ,1 03 ,4 60 1 5,74 8 14 ,3 47 1 0 .5 1,40 1 1,9 62,80 1 0.0 9 14.10 295 1
5 O M E G A T E K N IK A 2 ,0 12 ,5 80 1 0,22 6 9 ,2 14 1 0 .4 1,01 2 1,0 24,14 4 0.1 0 9.20 155 0
6 V IA S Y S H E A L T H C A R E 1 ,0 00 ,0 00 7,84 0 6 ,9 88 1 .0 852 7 25,90 4 0.1 1 7.05 97 0
7 N E P H E W & S M IT H 2 ,0 43 ,8 34 5,77 7 4 ,8 76 1 2 .0 901 8 11,80 1 0.1 6 5.20 282 1
8 P A R K H O U S E H E A L T H C A R E1 , 8 1 7 , 0 9 6 3,40 0 2 ,6 18 8 .9 782 6 11,52 4 0.2 3 3.06 265 1
9 C O N V A TE C 1 ,0 70 ,4 54 2,18 7 1 ,8 55 5 .2 332 1 10,22 4 0.1 5 1.97 50 0
1 0H U N T L E IG H T E C H 0 L O G Y 1 ,4 42 ,4 34 1,82 1 1 ,2 36 1 0 .3 585 3 42,22 5 0.3 2 1.64 299 1
1 1F IS H E R M E D IC A L 5 64 ,8 54 1,21 5 1 ,0 59 -7 . 4 156 24,33 6 0.1 3 1.09 30 0
1 2T A K A R A B E L M O N T 6 97 ,6 98 1,05 5 880 6 .0 175 30,62 5 0.1 7 0.95 87 0
1 3C U S T O M S H O L D IN G S 5 50 ,8 42 920 798 1 .4 122 14,88 4 0.1 3 0.83 42 0
1 4E L E K T A L IM ITE D 4 17 ,9 70 798 720 5 .6 78 6,084 0.1 0 0.72 51 0
1 5M C K E S S O N S O L U T IO N S P L C7 5 8 , 0 8 0 594 584 1 0 .2 10 100 0.0 2 0.53 224 1
1 6G Y R U S G R O U P L IM IT E D 3 82 ,7 54 509 469 -3 . 4 40 1,600 0.0 8 0.46 57 0
1 7N H C TE C H 0 L O G Y 2 59 ,2 58 434 398 3 .6 36 1,296 0.0 8 0.39 42 0
1 8W H A TM A N H E A L T H 4 06 ,6 64 369 300 7 .6 69 4,761 0.1 9 0.33 82 0
1 9B E Y A R D IA G 0 S T IC S 3 11 ,7 74 263 231 1 0 .4 32 1,024 0.1 2 0.24 82 0
2 0B E S P A K 5 85 ,8 86 262 225 9 .5 37 1,369 0.1 4 0.24 224 1
2 1B R A U N M E D IC A L 1 86 ,5 58 259 230 1 .2 29 841 0.1 1 0.23 73 0
2 2T Y C O H E A L TH C A R E 5 88 ,1 44 258 233 4 .1 25 625 0.1 0 0.23 200 1
2 3V A R IA N S Y S T E M S 7 51 ,5 46 257 200 9 .7 57 3,249 0.2 2 0.23 260 1
2 4P L E XU S 1 42 ,6 62 244 199 -7 . 9 45 2,025 0.1 8 0.22 50 0
2 5C A R D IN A L H E A L T H 3 04 ,7 22 243 224 3 .3 19 361 0.0 8 0.22 54 0
2 6A B B O T T D IA B E TE S 4 51 ,8 74 242 215 8 .0 27 729 0.1 1 0.22 64 0
2 7M C G H A N 1 77 ,4 36 241 215 -3 . 2 26 676 0.1 1 0.22 13 0
2 8D R A E G E R 6 41 ,4 40 239 220 8 .1 19 361 0.0 8 0.22 211 1
2 9A XIS -S H IE L D 1 31 ,8 34 238 205 -7 . 9 33 1,089 0.1 4 0.21 33 0
3 0F A N N IN H E A L T H C A R E 1 65 ,1 02 237 234 1 .1 3 9 0.0 1 0.21 25 0
3 1K A R L S TO R Z E N D O S C O P Y 1 4 8 , 6 9 2 236 216 -9 . 7 20 400 0.0 8 0.21 16 0
3 2S U R G IC A L O P E R A TIN G S U P P2L8IE 8 ,S4 0 4 225 224 -3 . 5 1 1 0.0 0 0.20 37 0
3 3IN T E R S U R G IC A L 1 76 ,0 58 224 212 -8 . 4 11 121 0.0 5 0.20 32 0
3 4C O O P E R V IS IO N M A N U F A C T U2R0 IN8 ,G460 208 196 -0 . 4 11 121 0.0 5 0.19 30 0
3 5W .R . S W A N N & C O 4 59 ,3 92 207 189 8 .9 18 324 0.0 9 0.19 65 0
3 6E S C H M A N N H O L D IN G S 2 29 ,3 20 181 159 8 .7 22 484 0.1 2 0.16 56 0
3 7K IM A L 7 16 ,4 80 180 152 4 .2 28 784 0.1 6 0.16 201 1
3 8H O L L IS T E R 2 63 ,3 26 179 139 3 .1 40 1,600 0.2 2 0.16 93 0
3 9S H IL O H 3 30 ,1 92 173 163 1 0 .5 10 100 0.0 6 0.16 73 0
4 0C O D M A N 3 50 ,1 92 153 145 8 .7 8 64 0.0 5 0.14 50 0
4 1G U ID A N T 3 79 ,6 70 140 121 9 .3 19 361 0.1 4 0.13 59 0
4 2C H A S , B L A TC H F O R D & S O N S2 1 1 , 2 4 6 133 128 2 .6 5 25 0.0 4 0.12 41 0
4 3B IO -M E D IC A L R E S E A R C H 2 63 ,5 94 132 115 3 .3 16 256 0.1 2 0.12 43 0
4 4O W E N M U M F O R D 1 65 ,3 44 119 111 -2 . 9 8 64 0.0 7 0.11 11 0
4 5A U D IO M E D IX 3 10 ,3 08 118 109 3 .5 10 100 0.0 8 0.11 46 0
4 6K E E L E R 3 24 ,3 30 111 100 5 .8 10 100 0.0 9 0.10 44 0
4 7C O R IN R E S E A R C H G R O U P 6 8 9 , 0 9 8 105 98 1 4 .2 7 49 0.0 7 0.09 214 1
4 8K C I D IA G 0 S TIC S 2 47 ,5 54 99 89 0 .2 10 100 0.1 0 0.09 21 0
4 9IR ID E X 5 73 ,9 58 91 78 7 .1 13 169 0.1 4 0.08 216 1
5 0M E D A E S 5 34 ,9 46 90 75 8 .8 15 225 0.1 7 0.08 229 1
5 1H A E M O N E T IC S 1 93 ,8 08 90 82 5 .4 8 64 0.0 9 0.08 37 0
5 2S TE R L IN G D IA G 0 S T IC S 3 13 ,0 30 82 73 5 .8 9 81 0.1 1 0.07 43 0
5 3B IO Q U E L L 5 72 ,2 36 75 64 1 8 .9 11 121 0.1 5 0.07 240 1
5 4P R O M E D IC S 2 85 ,5 58 71 65 5 .7 7 49 0.1 0 0.06 42 0
5 5A D V A N C E D M E D IC A L S O L U T IO
3 5 N4 ,S7 2 8 71 61 6 .8 10 100 0.1 4 0.06 49 0
5 6IN T E G R A N E U R O S C IE N C E S 2 0 2 , 7 3 6 70 63 2 .7 8 64 0.1 1 0.06 37 0
5 7C O L O P L A S T L A B S 2 73 ,2 62 61 53 3 .4 8 64 0.1 3 0.05 65 0
5 8B IO 0 S T IC S 5 39 ,6 98 56 48 7 .4 8 64 0.1 4 0.05 224 1
5 9M E D E X B IO P S 5 00 ,1 36 53 43 8 .6 10 100 0.1 9 0.05 235 1
Page 2
6.1 Results
SUMMARY OUTPUT
R Square 0.968072745
Observations 59
ANOVA
Regression 9 1.87716E+132.09E+12 165.0821 1.71237E-33
Residual 49 6.19092E+111.26E+10
Total 58 1.93907E+13
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Intercept 248824.9832 47250.149695.266121 3.09E-06 153872.2542343777.7153872.3 343777.7
TO -7636.969858 41331.17685-0.18478 0.854168 -90695.0778175421.14 -90695.1 75421.14
TC 6100.698167 41232.503420.147958 0.882983 -76759.118188960.51 -76759.1 88960.51
GR 10516.01436 3964.8115882.652336 0.010742 2548.427325 18483.6 2548.427 18483.6
TP 8234.452844 41233.150450.199705 0.842538 -74626.6636991095.57 -74626.7 91095.57
SQTP -0.555265084 0.065491777-8.47839 3.58E-11 -0.686875736-0.42365 -0.68688 -0.42365
PM -599165.1861 424657.6405-1.41094 0.164581 -1452546.649254216.3-1452547254216.3
MS 1681237.309 2630224.4220.639199 0.52567 -3604396.4586966871-3604396 6966871
SP 592.4371142 1193.2207270.496503 0.62176 -1805.4296662990.304 -1805.43 2990.304
SO 187084.0681 193056.0680.969066 0.337271 -200876.6182575044.8 -200877 575044.8
Observation
The coefficients of TO and PM are negative which is unrealistic.
The Tstat values of TO, TC, TP, PM, MS, SP and SO are insignificant.
Correlation
ERN TO TC GR TP SQTP PM MS SP SO
ERN 1
TO 0.858617 1
TC 0.8502620.999637 1
GR 0.4735560.2563530.252649 1
TP 0.9029370.976174 0.969970.279434 1
SQTP 0.7764930.9294110.9237560.2514230.950048 1
PM 0.2644650.008009-0.006720.2277520.126423 0.03105 1
MS 0.8586990.9999970.9995930.2563240.9765010.9300490.008237 1
SP 0.7141640.4537750.4443850.6418510.5172790.4763270.427682 0.45386 1
SO 0.4399830.1286640.1208290.5226950.1883420.1709720.349272 0.128570.914099 1
Page 1
7 Analysis by eliminating highly correlated as well as insignificant

variables.
7.1 Eliminating TO
SUM M ARY OUTPUT
M ultiple R 0.983896
R Square 0.96805
Observations 59
ANOVA
Regression 8 1.87712E+132.35E+12189.3712 1.21982E-34
Residual 50 6.19524E+111.24E+10
Total 58 1.93907E+13
Coefficients
Standard Errort Stat P-value Lower 95%Upper 95%
Lower 95.0%
Upper 95.0%
Intercept 248426.7 46742.834915.3147542.49E-06 154540.9314342312.4154540.9342312.4
TC -1505.78 2315.311503-0.650360.518438-6156.2214043144.658-6156.223144.658
GR 10628.96 3879.3903862.7398520.008499 2836.97202418420.942836.97218420.94
TP 629.0962 2429.7470790.2589140.796764-4251.1943625509.387-4251.195509.387
SQTP -0.55513 0.064852204-8.559952.29E-11-0.685391341-0.42487-0.68539-0.42487
PM -593307 419362.5469-1.41478 0.16333 -1435621.838
249007.1-1435622249007.1
MS 1647138 2598277.090.6339350.529013-3571655.0236865931-35716556865931
SP 577.9092 1179.0716410.4901390.626179-1790.3258492946.144-1790.332946.144
SO 189074.2 190884.56620.9905160.326691-194328.7236572477.1 -194329572477.1
Observation
The coefficient of PM is negative.
The Tstat values of GR, TP, PM, MS, SP and SO are insignificant.
Page 2
7.2 Eliminating TO, PM and MS
SUMM ARY OUTPUT
M ultiple R 0.98284227
R Square 0.965978927
Observations 59
ANOVA
Regression 6 1.8731E+133.12E+12246.0774 2.36596E-36
Residual 52 6.59693E+111.27E+10
Total 58 1.93907E+13
CoefficientsStandard Errort Stat P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
Intercept 224621.6015 44254.873455.0756355.28E-06 135817.7031313425.5135817.7313425.5
TC -22.40288868 16.11743029-1.389980.170457-54.744877969.939101-54.74499.939101
GR 12113.79011 3735.6966863.242712 0.00207 4617.56645719610.014617.56619610.01
TP 2050.279122 183.654242611.16382.03E-15 1681.7499312418.808 1681.752418.808
SQTP -0.504914709 0.052285198-9.656933.42E-13 -0.609832632 -0.4 -0.60983 -0.4
SP -197.6984432 981.8064192-0.201360.841201-2167.8371141772.44-2167.84 1772.44
SO 290907.2141 160826.06261.808831 0.07626 -31813.88342613628.3-31813.9613628.3
The coefficient of SP is negative.

The Tstat values of TC, SP and SO are insignificant
Page 2
7.3 Eliminating TO, TC, PM and MS
SUMMARY OUTPUT
R Square 0.964714886
Observations 59
ANOVA
Regression 5 1.87065E+133.74E+12 289.81 3.3873E-37
Residual 53 6.84204E+111.29E+10
Total 58 1.93907E+13
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Lower 95.0%
Upper 95.0%
Intercept 213902.9442 43959.346514.865926 1.06E-05 125731.663302074.2125731.7302074.2
GR 11326.98148 3724.8877993.0408920.003662 3855.80286518798.163855.80318798.16
TP 1859.201198 122.850277115.13388 6.94E-21 1612.7947522105.6081612.7952105.608
SQTP -0.505091134 0.052742774 -9.5765 3.74E-13 -0.610879739 -0.3993 -0.61088 -0.3993
SP 37.27332347 975.61059270.0382050.969668 -1919.55367 1994.1 -1919.55 1994.1
SO 267272.8163 161324.75311.6567380.103482 -56303.65366590849.3 -56303.7590849.3
All the coefficients follow the expected sign but Tstat of SP and SO are insignificant.
Page 3
7.4 Eliminating TO, TC, PM, MS and SP
SUMMARY OUTPUT
Multiple R 0.982199
R Square 0.964714
Observations 59
ANOVA
Regression 4 1.87065E+134.68E+12 369.0871 1.64975E-38
Residual 54 6.84222E+111.27E+10
Total 58 1.93907E+13
CoefficientsStandard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%

Upper 95.0%
Intercept 215393.1 20087.9005210.72253 5.46E-15 175119.2745255666.9 175119.3 255666.9
GR 11410.95 2979.3637293.829997 0.000336 5437.68951217384.22 5437.69 17384.22
TP 1862.045 96.8241458319.23121 7.99E-26 1667.9242952056.166 1667.924 2056.166
SQTP -0.50536 0.051769578-9.76181 1.59E-13 -0.60915631-0.40157 -0.60916 -0.40157
SO 273259.4 38006.36297.189834 2.03E-09 197061.2787349457.6 197061.3 349457.6
This model is a highly reliable model with all the variables being significant and all the
coefficients following the expected sign. This model predicts 96.21% variations of
CEO’s salary with a very high F statistic of 369. Among the reliable models, this model
has the highest adjusted R square and hence is the selected model to explain CEO’s
earnings.
Correlation
ERN GR TP SQTP SO
ERN 1
GR 0.473556 1
TP 0.902937 0.279434 1
SQTP 0.776493 0.251423 0.950048 1
SO 0.439983 0.522695 0.188342 0.170972 1
Page 3
Page 3
8 Data used for analysing the impact of share options on share price
Share Price© Share option

1 CHEM-LABS GROUP 370 1
2 BECKERMAN 175 0
3 BOSTON SCIENTIFIC 159 0
4 BECTON DICKINSON 295 1
5 OMEGA TEKNIKA 155 0
6 VIASYS HEALTHCARE 97 0
7 NEPHEW & SMITH 282 1
8 PARK HOUSE HEALTHCARE 265 1
9 CONVATEC 50 0
10 HUNTLEIGH TECH0LOGY 299 1
11 FISHER MEDICAL 30 0
12 TAKARA BELMONT 87 0
13 CUSTOMS HOLDINGS 42 0
14 ELEKTA LIMITED 51 0
15 MCKESSON SOLUTIONS PLC 224 1
16 GYRUS GROUP LIMITED 57 0
17 NHC TECH0LOGY 42 0
18 WHATMAN HEALTH 82 0
19 BEYAR DIAG0STICS 82 0
20 BESPAK 224 1
21 BRAUN MEDICAL 73 0
22 TYCO HEALTHCARE 200 1
23 VARIAN SYSTEMS 260 1
24 PLEXUS 50 0
25 CARDINAL HEALTH 54 0
26 ABBOTT DIABETES 64 0
27 MCGHAN 13 0
28 DRAEGER 211 1
29 AXIS-SHIELD 33 0
30 FANNIN HEALTHCARE 25 0
31 KARL STORZ ENDOSCOPY 16 0
32 SURGICAL OPERATING 37 0
33 INTERSURGICAL 32 0
34 COOPERVISION 30 0
35 MANUFACTURING
W.R.SWANN & CO 65 0
36 ESCHMANN HOLDINGS 56 0
37 KIMAL 201 1
38 HOLLISTER 93 0
39 SHILOH 73 0
40 CODMAN 50 0
41 GUIDANT 59 0
42 CHAS, BLATCHFORD & SONS 41 0
43 BIO-MEDICAL RESEARCH 43 0
44 OWEN MUMFORD 11 0
45 AUDIOMEDIX 46 0
46 KEELER 44 0
47 CORIN RESEARCH GROUP 214 1
48 KCI DIAG0STICS 21 0
49 IRIDEX 216 1
50 MEDAES 229 1
51 HAEMONETICS 37 0
52 STERLING DIAG0STICS 43 0
53 BIOQUELL 240 1
54 PROMEDICS 42 0
ADVANCED MEDICAL
55 SOLUTIONS 49 0
56 INTEGRA NEUROSCIENCES 37 0
57 COLOPLAST LABS 65 0
58 BIO0STICS 224 1
59 MEDEX BIOPS 235 1
Page 1
8.1 Results achieved
SUMMARY OUTPUT
R Square 0.835577139
Observations 59
ANOVA
Regression 1 432316.6786 432316.7 289.6671 5.18E-24
Residual 57 85070.23669 1492.46
Total 58 517386.9153
Coefficients Standard Error t Stat P-value Lower 95%Upper 95%

Lower 95.0%
Upper 95.0%
Intercept 57.4047619 5.961104669 9.629887 1.47E-13 45.46786 69.34167 45.46786 69.34167
SharePrice 189.0070028 11.1052488 17.01961 5.18E-24 166.7691 211.2449 166.7691 211.2449
Page 1

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Exam Number: F09070

CRANFIELD SCHOOL OF MANAGEMENT

Full Time MBA Programme 2009/10

STRATEGIC DECISION SCIENCES

This assessment/report is all my own work and conforms to the University’s

2. Analysis of Explanatory Variables 2

2 Data used for regression analysis for CEO’s remuneration 6

4 Interpreting the Regression Analysis Coefficients 8

4.2 Multiple Coefficient of Determination R2 8

4.3 Adjusted multiple coefficient of determination 9

6 Analysing the non linear relationship of Turnover on CEO’s earnings 11

7 Law of diminishing returns 12

8 Data used for regression analysis 13

9 Analysis by eliminating highly correlated and insignificant variables 15

9.1 Eliminating Market Share (MS) only 15

9.2 Eliminating Total Costs (TC) only 16

9.3 Eliminating Total Profits (TP) only 17

9.4 Eliminating TP and MS 18

9.5 Eliminating TP, TC and MS 19

9.6 Eliminating TC, TP, PM, MS AND SP 20

9.7 Eliminating TC, PM, MS AND SP 21

10 Analysing the non linear relationship of total profits to Earnings 22

12 Analysis by eliminating highly correlated as well as insignificant variables.25

12.2 Eliminating TO, PM and MS 26

12.3 Eliminating TO, TC, PM and MS 27

12.4 Eliminating TO, TC, PM, MS and SP 28

13.1 Results achieved 30

2. Analysis of Explanatory Variables

In regression analysis the dependent variable is sometimes influenced by a qualitative

2 Data used for regression analysis for CEO’s remuneration

E arnin gs ($ )T u rn0 ve r($ m To

4 Interpreting the Regression Analysis Coefficients

The statistical significance of a regression model can be explained by analysing the

The testing of the statistical significance of the individual coefficients estimated by

As k measures the number of explanatory variables, so the degrees of freedom, N – k –

4.2 Multiple Coefficient of Determination R2

4.3 Adjusted multiple coefficient of determination

1 Analysing the non linear relationship of Turnover on CEO’s

2 Law of diminishing returns

3 Data used for regression analysis

Coefficients of TP, PM and MS are negative which is not possible in reality.

4 Analysis by eliminating highly correlated and insignificant

4.1 Eliminating Market Share (MS) only

SUM M ARY OUTPUT

CoefficientsStandard Errort Stat P-value Low er 95%Upper 95%

4.2 Eliminating Total Costs (TC) only

SUM M ARY OUTPUT

4.3 Eliminating Total Profits (TP) only

4.4 Eliminating TP and MS

Coefficients Standard Error t Stat P-value Lower 95%

4.5 Eliminating TP, TC and MS

SUM M ARY OUTPUT

CoefficientsStandard Errort Stat P-value Lower 95%U pper 95%

4.6 Eliminating TC, TP, PM, MS AND SP

SUM M ARY OUTPUT

CoefficientsStandard Errort Stat P-value Lower 95%Upper 95%

4.7 Eliminating TC, PM, MS AND SP

CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%

5 Analysing the non linear relationship of total profits to Earnings

E a rn in g s ($Tu ) rn 0 ve r($ mT on t)a l C o s t s ($ m

7 Analysis by eliminating highly correlated as well as insignificant

SUM M ARY OUTPUT