An Innovative Method for Deterministic Multifactor Analysis Based on Chain Substitution Averaging

Abstract

The aims of this paper are to present the methodology, derived mathematical expressions for determining the individual factor influences and the adaptation for the conditions of dynamic deterministic factor analysis and the results of the application of the developed new method for deterministic factor analysis, called the averaged chain substitution method. After formulating the concept of the considered approach, all mathematical expressions used to create models containing up to four factor variables are presented and summarized. The scientific novelty of the study is in the obtained new equations for determining the individual factor influences by the method of averaged chain substitution and the method of analogy for five-factor additive or difference-multiplicative and for five-factor additive or difference-multifactor models with an additive or different part in the numerator of the factor model. The presented mathematical expressions accurately and unambiguously quantify the impact of individual factor influences for all types of factor models and thus significantly expand the applicability of the averaged chain substitution method in the theory and practice of financial-economic analysis. The proposed formalization and algorithmization of the evaluation process makes the method easy to apply by all economic and financial analysts for the purposes of deterministic factor analysis. The methodology was applied to perform a dynamic deterministic factor analysis of the total liquidity of Monbat AD and ELHIM-ISKRA AD for the period 2017–2021, based on the consolidated annual financial statements of the companies, available on the website of the Bulgarian Stock Exchange.