"Enhanced Insights into Financial Metrics: A Comprehensive Analysis and False Discovery Rate

Control of Estimated Shares Outstanding"

Introduction

The analysis conducted on a dataset of financial fundamentals aimed to uncover relationships

between various financial metrics and their impact on companies' estimated shares outstanding.
The dataset underwent preprocessing, exploration, visualization, and statistical modeling,
including linear regression with and without interaction terms, to understand the complex
dynamics in financial data.

Data Preprocessing

1. Initial Data Check: The dataset contained columns such as 'Ticker Symbol', 'Period Ending',
and 'Estimated Shares Outstanding', among others. Initial examination revealed mixed data types
and some missing values.

2. Handling Missing Values: The dataset had missing values across several columns. All rows
containing any missing values were dropped to ensure the analysis was conducted on complete
cases.

3. Column Removal: Columns not relevant to the analysis, including 'Ticker Symbol', 'Unnamed:
0', 'Period Ending', and 'Estimated Shares Outstanding', were dropped to focus on numerical
financial metrics.

Data Exploration and Visualization

1. Scatter Plots were generated to explore relationships between pairs such as R&D Expenses vs.
Earnings Per Share and Total Revenue vs. Net Income. These plots revealed no clear linear
relationship in the former and a non-proportional relationship in the latter case.
2. Histograms were used to analyze the distribution of 'Earnings Per Share' and 'Gross Margin',
indicating a skewed distribution for EPS and a multimodal distribution for Gross Margin.

3. Correlation Analysis with a heatmap highlighted the varying degrees of correlation between
different financial metrics.

Linear Regression Model

1. Model Creation: A linear regression model was developed to predict 'Estimated Shares
Outstanding' using financial metrics as predictors. The model demonstrated an R-squared value
of 0.854, indicating a strong ability to explain variability in the dependent variable.

2. P-Value Analysis: A histogram of the p-values from the model indicated three main groups,
suggesting varying levels of significance among the predictors.

False Discovery Rate Control

1. Benjamini-Hochberg Procedure: Applied at a q-value of 0.1, this method estimated the number
of true discoveries while controlling the false discovery rate (FDR). The analysis identified a
significant number of predictors that were statistically meaningful.

2. Sensitivity Analysis: Varying the q-values in the BH procedure showed changes in the number
of true discoveries, indicating the model's sensitivity to the threshold of significance.

Interaction Terms Analysis

1. Inclusion of Interaction Terms: Interaction terms were generated to explore non-linear

relationships and their combined effect on the dependent variable. This resulted in a more
complex model with a higher R-squared value, suggesting a better fit but also highlighting the
risk of overfitting.
2. Evaluation: The new model was compared to the original using metrics such as R-squared, F-
statistic, AIC, and BIC. The comparison showed improvements in model fit but also a need for
careful consideration of model complexity and potential multicollinearity.

3. FDR Analysis with Interaction Terms: Applying the BH procedure to the model with
interaction terms at a q-value of 0.1 identified a larger number of significant predictors,
reinforcing the value of including interaction terms in uncovering more complex relationships.

Conclusion

The analysis demonstrated the intricate relationships between financial metrics and their impact
on estimated shares outstanding. Including interaction terms significantly enhanced the model's
ability to capture these relationships, as evidenced by the increased number of true discoveries
and improved model fit metrics. However, the complexity of the enhanced model necessitates
careful interpretation and validation to avoid overfitting and ensure the generalizability of the
findings. This report underscores the importance of thorough data preprocessing, exploratory
analysis, and sophisticated modeling techniques in financial data analysis.