What is the Independent Variable?

Variable means something which will change as per available information. Independent variable means information that is not dependent on any other input and is provided on a standalone basis. For example, the date of birth of a person is an independent variable for calculating the present age. It will not change based on any factors. In financial modelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company’s projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.read more, it can be an assumption for the number of units sold, a growth rateGrowth RateThe Growth rate formula is used to calculate the annual growth of the company for a particular period. It is computed by subtracting the prior value from the current value and dividing the result by the prior value.read more of sales or input for interest rate or a cost driver, etc.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Independent Variable (wallstreetmojo.com)

Example of Independent Variable

Example #1

Let’s consider an example of a famous company which sells its goods on a retail basis.

The impact of the said variable on the profit figures of the company is as follows:

Explanation

  • Here the employee cost depends on the number of employees and the average salary per employee.Total revenue depends on independent variables such as the number of employees, average sales per employee, and diminishing returns per employee.Rental cost depends on the number of stores & rental cost per store.Total expense is dependent on salaries & rental cost. Further, the profits are based on total revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more & total expenseExpenseAn expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising capital.read more. Similarly, profit % is on other factors, which are further dependent on the independent variables.

Example #2

We can consider the data as follows for the graph:

The independent variable is the selling price. The impact of change in selling price on the amount of gross profitGross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more (i.e. dependent on selling price, direct costDirect CostDirect cost refers to the cost of operating core business activity—production costs, raw material cost, and wages paid to factory staff. Such costs can be determined by identifying the expenditure on cost objects.read more and the number of units) is below:

Explanation:

  • The gross profit here is directly based on other factors.Any change in selling price affects the gross profit levels.

Uses

  • Workplace –  Independent variable can be used at workplaces wherein an employer needs to find whether providing different types of work to employees leads to increased satisfaction of their job profile or not. Such an experiment is conducted by providing a new set of work to one group of employees and a similar set of repeated work to other employees. Here, providing the work (new/repeated) to employees is an independent variable. The outcome depends on the input provided.Health Research – One can use it in a health research center where the doctors need to check the anxiety level/response of immunity to a new treatment for a set patient dealing with the same disease. For example, the experiment gave the new treatment to one group of patients and another treatment to another group of patients. Here, the type of treatment is an independent variable, which will provide the outcome (i.e., the level of anxiety in patients).Coaching Classes – One can also use the independent variable for a coaching classes environment wherein the coaching organization wants to check whether the students become attentive in class if the color of the walls changes from blue to light yellow. So, an experiment was conducted where one asked one set of students to study in the blue-colored hall and another group to study the same topic in a yellow-colored hall. Here, the color type is an independent variable.School Administration – One can also use an independent variable in a school wherein the head administrative wants to assess whether weekly extra-curricular (i.e., exercise) periods will help students to achieve more concentration in studies. So, in an experiment, one set of students was allowed weekly extra-curricular periods for 3 months, and they did not offer another set of students any additional periods. Again, the status depends on a quarterly test conducted in the school. Here, the extra-curricular periods are independent variables.

This article has been a guide to Independent Variables and their definition. Here, we discuss how it works, along with examples and uses. You may learn more about financing from the following articles: –

  • Independent EventsTwo-Variable Data Table in ExcelRegressionLeast Squares Regression