Reference no: EM132840359

Clustering Pharmaceutical Firms (Q14.2, Shmueli et al.)

An equities analyst is studying the pharmaceutical industry and would like your help in exploring and understanding the financial data collected by her firm. Her main objective is to understand the structure of the pharmaceutical industry using some basic financial measures. Financial data gathered on 21 firms in the pharmaceutical industry are available in the file Pharmaceuticals.xls. For each firm, the following variables are recorded. 2 1. Market capitalization (in billions of dollars) (Mcap) 2. Beta (Beta) 3. Price/earnings ratio (PER) 4. Return on equity (ROE) 5. Return on assets (ROA) 6. Asset turnover (AT) 7. Leverage (Leverage) 8. Estimated revenue growth (ERG) 9. Net profit margin (NPM) 10. Median recommendations (across major brokerages) (MRec) 11. Location of firms headquarters (Location) 12. Stock exchange on which the firm is listed (Exchange) Use cluster analysis to explore and analyze the given dataset as follows (you need to use the File Import node as explained in Homework 01): 1. Use only the quantitative variables (1-9) to cluster the 21 firms. Use the default settings in SAS Enterprise Miner. 2. Interpret the clusters with respect to the quantitative variables that were used in forming the clusters. 3. Is there a pattern in the clusters with respect to the qualitative variables (10-12) (those not used in forming the clusters)? 4. Provide an appropriate name for each cluster using any or all of the variables in the dataset. 5. Do the clusters formed seem reasonable? Try different numbers of clusters and see the results. Feel free to experiment with other criteria as needed. Explain the reasons for your selections, and identify the best clustering in your opinion (justify).