Saturday, 3 September 2011

Predicting Dividend payments using Radar Graphs

We will be mapping different variables which affect the dividend policy of a company. The dependent variable (or grouping variable would be the dividend paid in last 3 years- Yes or No). The independent variables are factors like-

1. Earnings Stability

2. Funds Liquidity

3. Past Dividend Rates

4. Ability to Borrow

5. Impact of Govt Policies

All of these factors are rated on a scale of 5. Discriminant Analysis is run across these variables to check the variability between the groups and across the groups (Eigen Values and Wilk’s Lambda). Also, we can see the different correlations which affect the Divident policy of the firms. We can make tables to check the data on 4 such companies from BSE/NSE.

This can be represented in the form of a Radar Graph. Radar graphs are similar to line graphs, except that they use a radial grid to display data items. A radial grid displays scale value grid lines circling around a central point, which represents zero. Higher data values are farther from the center point.

This Graph shows that the company 1 has got highest Earning stability and has the highest Past dividend rates. Thus by extending the logic, we can predict from these graphs the kind of companies which are likely to pay high dividends. Thus radar graphs are very simple to interpret and a powerful measure of representing the data.

Vyom Saini (13114)

Fin Grp-6

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