Discriminant Analysis

It is statistical tool in SPSS designed to predict the groups or categories into which individual cases will fall on the basis of a number of independent variables. Discriminant analysis attempts to identify which variables or combinations of variables accurately discriminate between groups or categories by means of a scatter diagram or classification table called a confusion matrix.

Discriminant analysis has wide applications in various field of Management-

Finance - Credit risk analysis or prediction of company failure.

Marketing- Market segmenting and which products to manufacture and where to sell.

Operations – In supply chain management.

For finance it is used while taking financial ratios in accounting company’s financial position

As in there are many ratios’s which are considered to calculate liquidity of the company and each ratio has its own use. So the problem is to use the ratios which have relevance to credit risk of the company and to differentiate in those ratios according to their importance in measuring credit risk of that company different weight age is given to that particular ratio in accordance with their importance using discriminant analysis

It is also used to classify the observation in to one of the several apriori groupings dependent upon the observations individual characteristics. It is used to primarily classify or to make prediction of the problem using data. (dependent variable appears in qualitative form).

Discriminant Analysis helps to study the difference between two or more groups of objects with respect to several variables simultaneously, determining whether meaningful differences exist between the groups and the discriminating power of each variable.

By –Shital Jain

Roll No. - 13104

Finance Group 5