What Is the Purpose of Factor Analysis

question 1

Multiple Choice

What is the purpose of factor analysis?

• A) The purpose of factor analysis is to reduce many individual items into a smaller number of variables.
• B) The purpose of factor analysis is to use a set of variables to predict an outcome variable.
• C) The purpose of factor analysis is to look for a relationship between two variables.
• D) The purpose of factor analysis is to determine if there is a significant difference between the means of two groups.

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Definitions:

Abnormal Earnings Approach

A method for valuing a company's worth based on the premise that stock prices are influenced by differences between the expected and actual earnings, adjusted for the cost of capital.

Equity Valuation

The process of determining the fair market value of a company's equity or shares.

Positive Abnormal Earnings

Earnings that exceed what is normally expected, based on historical trends or industry standards, often indicating superior performance.

Sustainable Earnings

Refers to the portion of a company's income considered to be predictable, repeatable, or likely to continue in the future.