Author Question: What three diagnostic measures of multiple regression models are most important? What will be an ... (Read 22 times)

cartlidgeashley · **on:** Sep 11, 2019

Question 1

What is the difference between profit margin and return on investment?

What will be an ideal response?

Question 2

What three diagnostic measures of multiple regression models are most important?

What will be an ideal response?

cupcake16 · **Reply #1 on:** Sep 11, 2019

Answer 1

Profit margin is derived by dividing net profits by sales. The return on investment (ROI) is calculated by net profits by total assets.

Answer 2

The three are the R-squared, t-statistic, and Durban-Watson statistic. The R-squared measures the extent to which the independent or causal variables explain the movement in the dependent variable. The closer the reading is to 1.0 the better. The t-statistic reveals the relative importance of the independent variables in the forecasting equation. The higher the t-statistic for each variable the better and if one of the variables shows a reading < 1.0, then its contribution is considered marginal and can be removed from the equation without harming the result. Finally, the Durban-Watson statistic analyzes the differences between the actual values of the dependent variable and the values predicted by the regression equation. These so-called error terms or variation between the two should be random from period to period. However, if an ascending or descending pattern is present, this suggests collinearity and that there is an independent variable that is missing from the equation or that one of those variables in the equation should be replaced or removed.