Demand, Recurring Costs, And Profitability Doug Howarth, CEO, MEE Inc. www.meevaluators.com (661) 713-7531
“So it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss. If you only know yourself, but not your opponent, you may win or may lose. If you know neither yourself nor your enemy, you will always endanger yourself.” Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com The Art of War by Sun Tzu
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Outline •
Fuzzy demand
•
Market limits •
Demand Frontier
•
Market Aggregate Demand
•
Price responsiveness & limit enforcement
•
Working with the Demand Frontier
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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In This Section
Fuzzy Demand
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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Fuzzy Demand: Here Are The QuantityPrice Points For Three Markets Simply regressing the data will not provide much insight – What will?
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
4
In This Section
Market Limits
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
5
Let’s Examine Defense Electronics By Evenly Binning Models By Price We begin by dividing the models into bins evenly spaced by price; note that the lowermost bin has most of the data
Market Aggregate Demand, indicated by the red line, is the regressed value of the red points in each bin, the total quantity and weighted average price EOIR Frontier & Aggregate Demand 17,000,000
1,700,000
Bin 4 Bin 3 Bin 2 Bin 1
y = 2E+08x-0.403 R² = 0.9255
170,000 y = 4E+09x-0.953 R² = 0.9812 17,000
22
220
2,200
22,000
The Demand Frontier is defined by the outermost points in the data, selected as the rightmost and next rightmost points in each bin – this is good but not great We will try another technique to see if we can improve results
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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Instead Of Even Binning, Here We Use Bins Based On A Geometric Series Geometrically based binning provides a more regular pattern to the analysis
This has improved Market Aggregate Demand correlation, but we’ve made no attempt to improve our Demand Frontier Analysis here
We will try a third technique to see if we can improve results
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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Now We Will Try Binning Based On the Fibonacci Series In this case, we now have our best Market Fibonacci based binning provides an even Aggregate Demand and Demand Frontier more regular pattern to the analysis correlations and P-values EOIR Frontier & Aggregate Demand 17,000,000
y= R² = 0.9721
Bin 4
2E+09x-0.755
1,700,000
Bin 3 Bin 2 Bin 1
170,000
17,000
y = 8E+09x-0.989 R² = 0.9656 22
220
2,200
22,000
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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In This Section
Price Responsiveness & Limit Enforcement
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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Let’s Consider Market For Fighters, Bombers And Attack Aircraft Fibonacci based binning again provides a regular pattern to the analysis
The Demand Frontier and Aggregate Demand Curves are well-correlated Bomber Frontier & Aggregate Demand 650,000,000
Aggregate Demand (no bias) = 6,762,000,000x-0.574 R² = 0.987
Demand Frontier (no bias) = 11,230,000,000x-0.733 R² = 0.995
Bin 3 Bin 2
65,000,000
6,500,000
Curve
Bin 5 Bin 4
Bin 1
19
190
1,900
Pearson’s2
P-Value
Standard Error
Demand Frontier
99.7%
6.79E-09
$33.5M
Aggregate Demand
99.9%
0.07%
$28.7M
19,000
What can we do with this analysis?
Presented at the 2018 ICEAA Professional Development & Training Workshop - www.iceaaonline.com Copyright 2018 MEE Inc.
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First, We Might Want To Know Where All Of The Money Goes $400
Billions of 2016$
$350
US Bomber Spending 1957-2016 $340
$330
$300 $250 $200 $150
$130
$100
$65
$50 $0
$24 $
