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Averaged Chain Substitution Method – Applicability, Advantages, and Disadvantages

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  • Veselin Mitev

    (University of Mining and Geology is “St. Ivan Rilski†, Sofia, Bulgaria)

Abstract

The article presents the applicability, advantages and disadvantages of the methods of determinant factor analysis, which are employed most commonly in practice for the needs of financial and business analysis. The averaged chain substitution method is developed and tested for approval for all possible combinations of factor models comprising two, three, and four factor variables. Analytical expressions are derived for the quantitative determination of the individual factor influences of the participating factor variables over the variation of their result indicator. It is characterized by universality and eliminates the only significant disadvantage of the chain substitution method, namely the ambiguity (non-accuracy) of the results obtained thereby regarding the quantitative measurement of the individual factor influences of the participating factor variables exerted on the variation of the result indicator when changing the order of substitutions of the factor variables in the construction of factor chains. The objective of the present study is to reveal the applicability, advantages, and disadvantages of the methods of determined factor analysis and to present the results of the approbation of the averaged chain substitution method for all possible combinations of factor models composed of two, three, and four factor variables.

Suggested Citation

  • Veselin Mitev, 2021. "Averaged Chain Substitution Method – Applicability, Advantages, and Disadvantages," Ikonomiceski i Sotsialni Alternativi, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 127-138, July.
    • Handle: RePEc:nwe:iisabg:y:2021:i:2:p:127-138
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