Equimax - Empowering You Through Valuation
Regression Analysis and its Importance in Valuation
Regression analysis is the estimation of ratios between two variables.
In business, it is mainly used for prediction of events are slated to happen in future eg. predicting
sales in a particular festival, purchase of particular model of TV or car or just about any product, number
of viewers expected to watch a particular season of IPL and so on. You may want to estimate the growth of car
sales with respect to GDP, we have to use the past relationship between car sales and GDP. So if car sales
grow twice as much as the economy rate or GDP rate
Car sales = GDP X 2
Thus Regression analysis helps in
1) Decision Making
2) Predictive Analysis
3) Risk Analysis
4) Optimisation of Resources
5) Understanding of Challenges and Opportunities
Regression models provide a fairly accurate alternative to other models. They are flexible and objective and widely used in valuation.
It is a powerful tool to unveil future opportunities and risks.
Various industries mainly finance,insurance and real estate use it to identify trends and opportunities which leads to better planning and
decision making. It can be safely said that regression analysis is the all weather tool for valuation for any planner, statistician or decision maker.
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