RATIO ANALYSIS USING

REGRESSION AND
DISTRIBUTED LAG MODEL
SUBMITTED BY:
DEVYANI SINGH
DRISHA BILGRAMI
POORNA G
SANJANA WANMALI
SWATI SINGH
 RATIOS & DATA SET

• PROFITABILITY RATIOS: Profitability ratios are financial metrics that are used
assess a business’s ability to generate earnings relative to its revenues, costs.
• PRODUCTIVITY RATIOS: Productivity is the ratio of output over input.
• The sample set we have taken is for 5 years for Ratio Analysis using
regression and 7 years for Distributed lag Model.
 MULTIPLE REGRESSION ANALYSIS

Multiple linear Regression is an extension of linear regression.

As a predictive analysis, the multiple linear regression is used to explain the relationship between one
dependent variable and two or more independent variables.

Removing the non Performing

Finding Collinearity significant regression on the
independent remaining
variables variables.

The best fit model is:

Adjusted R square closest to 1
F significant and P value <5%
 ROA & PROFITABILITY RATIOS

INDEPENDENT VARIABLES (after removing collinearity) DEPENDENT VARIABLE

Interest Earned, Non interest income, Non interest Expense ROA

Coefficients P-value
Regression Statistics
Intercept 0.0252 0.0554
Multiple R 0.999 Interest Earned
0.0414 0.03298
Ratio
R Square 0.999 Non Interest
-0.0195 0.1191
Expense Ratio
Adjusted R Square 0.998 Non Interest Income
-0.0306 0.0942
Ratio

Standard Error 0.00006

The best fit model is:
ROA = 0.0414*Interest Earned Ratio+e
Observations 5
 ROA & PRODUCTIVITY RATIOS
INDEPENDENT VARIABLES DEPENDENT VARIABLE
Deposit per Employee, Advances per employee ROA

Regression Coefficients P-value

Statistics Intercept 0.0268 0.030
Multiple R 0.990 Deposit per
0.01058 0.044
employee
R Square 0.981 Advances per
-0.0003 0.70
employee
Adjusted R Square 0.963
The best fit model is:
Standard Error 0.00031 ROA = 0.0268+0.01058*Deposit per Employee+e

Observations 5
 ROE & PROFITABILITY RATIOS
INDEPENDENT VARIABLES DEPENDENT VARIABLE
Non Interest Expense, Non Interest Income, Burden
ROE
Ratio
•\ Coefficients P-value
Regression Statistics
Intercept 0.429519 0.618167
Multiple R 0.526873
Non Interest
-0.80762 0.844044
Expense
R Square 0.277595
Non Interest
-0.97787 0.734189
Adjusted R Square -1.88962
Income
Burden Ratio 2.272676 0.895279
Standard Error 0.027575
The best fit model is: NA
Observations 5
 ROE & PRODUCTIVITY RATIOS
INDEPENDENT VARIABLES DEPENDENT VARIABLE
Deposit Per Employee, Total Income per
ROE
employee, Total Business per employee

Regression Statistics Coefficients P-value

Intercept 0.42641 0.050757

Multiple R 0.997106
Deposit per
-0.02256 0.285854
R Square 0.99422 employee
Total business
-0.16355 0.051882
Adjusted R Square 0.976878 per employee
Total Income per
0.750915 0.047132
Standard Error 0.002467 Employee

The best fit model is: NA

Observations 5
 BACKWARD INTEGRATION

Removing the non Iterating step 2, till

Running Regression on most significant we find the best fit
significant independent independent model with a
variables variables from the particular
model- Backward independent
Integration variable.
 ROA & PROFITABILITY INDEPENDENT VARIABLES

Independent Variable Rsquare F value P value

Burden Ratio 0.7647 0.0524 0.0524
Non Interest Income Ratio 0.4545 0.2120 0.2120 SIGNIFICANT VARIABLES:
Non Interest Expense
Ratio 0.7286 0.0658 0.0658 • INTEREST PAID RATIO
• INTEREST EARNED RATIO
Spread Ratio 0.5225 0.1677 0.1677
Interest Paid Ratio 0.9978 0.0000 0.0000
Interest Earned Ratio 0.9863 0.0007 0.0007
 INDEPENDENT VARIABLES DEPENDENT VARIABLE
Interest Paid Ratio, Interest Earned Ratio ROA

Coefficients P-value
Intercept 0.01758 0.00433
• P value of Interest Earned ratio is >5%, hence we
Interest Earned
0.00486 0.73786 remove this and perform second step regression.
Ratio
Interest Paid
0.01335 0.04831
Ratio
 BEST FIT MODEL..

Regression Statistics Standard

Coefficients P-value
Error
Multiple R 0.998 Intercept 0.0180 0.00031 0.00001
Interest Paid
R Square 0.997 0.0148 0.0004 0.00004
Ratio

Adjusted R Square 0.997 • The best fit model is :

ROA = 0.0180+0.0148*Interest Paid Ratio + e
Standard Error 0.0001 • It implies that with every 1 unit increase in Interest
Paid Ratio, the ROA will increase by ~2%
Observations 5
ROA & PRODUCTIVITY INDEPENDENT VARIABLES

Independent Variable Rsquare F value P value SIGNIFICANT VARIABLES:

Deposit per employee 0.9800 0.0012 0.0012
• DEPOSIT PER EMPLOYEE
Advances per employee 0.7886 0.0442 0.0442 • ADVANCES PER EMPLOYEE
Total business per
employee 0.5974 0.1254 0.1254
Total expense per
employee 0.2616 0.3784 0.3784
Total Income per
Employee 0.5323 0.1618 0.1618
 INDEPENDENT VARIABLES DEPENDENT VARIABLE
Deposit per Employee, Advances per employee ROA

Coefficients P-value
Intercept 0.0269 0.0300 • P value of Advances per Employee is >5%, hence we
Deposit per remove this and perform second step regression.
0.0106 0.0442
employee
Advances per
-0.0003 0.7045
employee
 BEST FIT MODEL..
Coefficients P-value
Regression Statistics
Intercept 0.02481 0.00000
Multiple R 0.9899 Deposit per
0.01146 0.00120
employee
R Square 0.9799
• The best fit model is :
Adjusted R Square 0.9733 ROA = 0.02481+0.01146*Deposit Per Employee + e
• It implies that with every 1 unit increase in deposit
Standard Error 0.0003 per employee, the ROA will increase by ~3%
Observations 5
ROE WITH PROFITABILITY INDEPENDENT VARIABLES

Independent Variable Rsquare F value P value

Interest Earned Ratio 0.016279 0.83799 0.83799
SIGNIFICANT VARIABLES:
Interest Paid Ratio 0.010886 0.867396 0.867396
N.A. As the p value of all the
variables is greater than 5 %
Spread Ratio 0.000553 0.970072 0.970072
Non Interest Expense
Ratio 0.085827 0.632395 0.632395
Non Interest Income Ratio 0.166675 0.495014 0.495014
Burden Ratio 0.062468 0.685117 0.685117
ROE WITH PRODUCTIVITY INDEPENDENT VARIABLES

Independent Variable Rsquare F value P value

0.687527
Deposit per employee 0.06149467 0.687527 12
0.686737 SIGNIFICANT VARIABLES:
Advances per employee 0.06181279 0.686737 02 N.A since p values is greater
Total business per 0.710056 than 5%
employee 0.05278922 0.710056 27
Total expense per 0.883412
employee 0.00840822 0.883412 4
0.972853
Total Income per Employee 0.00045463 0.972854 97
 FORWARD INTEGRATION

Regression is run with

Finding the most significant dependent variable, Step 2 is iterated until
Independent variable (highest T the most significant the best fit model is
value and p<5%) variable and another found
independent variable
ROA & PROFITABILITY INDEPENDENT VARIABLES

SIGNIFICANT VARIABLES:
Independent Variable T VALUE P value
Burden Ratio -3.1200 0.0524 • INTEREST PAID RATIO
Non Interest Income • INTEREST EARNED RATIO
Ratio 1.5800 0.2120
• The best fit model is :
Non Interest Expense ROA = 0.0180+0.0148*Interest Paid Ratio + e
Ratio -2.8300 0.0658 • It implies that with every 1 unit increase in Interest
Spread Ratio 1.8100 0.1677 Paid Ratio, the ROA will increase by ~2%

Interest Paid Ratio 36.7200 0.0000 • SAME RESULT AS BACKWARD INTEGRATION

Interest Earned Ratio 14.6700 0.0007

ROA & PRODUCTIVITY INDEPENDENT VARIABLES

Independent
P value T VALUE
Variable
SIGNIFICANT VARIABLE:
Deposit per
0.0012 12.11
employee • DEPOSIT PER EMPLOYEE
Advances per
0.0442 -3.345
employee • The best fit model is :
Total business per ROA = 0.02481+0.01146*Deposit Per Employee + e
0.1254 -2.1
employee • It implies that with every 1 unit increase in deposit
Total expense per per employee, the ROA will increase by ~3%.
0.3784 1.03
employee
Total Income per
0.1618 -1.847
Employee
ROE & PROFITABILITY INDEPENDENT VARIABLES
Independent Variable T value P value
Interest Earned Ratio 0.223 0.838
Interest Paid Ratio 0.182 0.867
Spread Ratio -0.041 0.970 SIGNIFICANT VARIABLES:
N.A. As the p value of all the
Non Interest Expense Ratio 0.531 0.632 variables is greater than 5 %

Non Interest Income Ratio -0.775 0.495

Burden Ratio 0.447 0.685

 ROE & PRODUCTIVITY INDEPENDENT VARIABLES

Independent Variable T value P value R square F Value

Deposit per employee 0.443 0.688 0.061 0.688

Advances per employee -0.445 0.687 0.062 0.687

SIGNIFICANT VARIABLES:
Total business per N.A. As the p value of all the
-0.409 0.710 0.053 0.710
employee variables is greater than 5 %
Total expense per
0.159 0.883 0.008 0.883
employee
Total Income per
0.037 0.973 0.000 0.973
Employee
 SUMMARY- PROFITABILITY RATIOS

REGRESSION BEST FIT MODEL

MULTIPLE LINEAR Interest Earned Ratio
ROA
FORWARD INTEGRATION Interest Paid Ratio
BACKWARD INTEGRATION Interest Paid Ratio

REGRESSION BEST FIT MODEL

MULTIPLE LINEAR NA
ROE
FORWARD INTEGRATION NA
BACKWARD INTEGRATION NA
 SUMMARY- PRODUCTIVITY RATIOS

REGRESSION BEST FIT MODEL

MULTIPLE LINEAR Deposit Per Employee
ROA
FORWARD INTEGRATION Deposit Per Employee
BACKWARD INTEGRATION Deposit Per Employee

REGRESSION BEST FIT MODEL

MULTIPLE LINEAR NA
ROE
FORWARD INTEGRATION NA
BACKWARD INTEGRATION NA
DISTRIBUTED LAG MODEL (POORNA)