In today’s global business and economic environment, anyone can access vast amounts of statistical information. The most successful managers and decision makers understand the information and know how to use it effectively. In this section, we provide examples that illustrate some of the uses of statistics in business and economics.
Accounting
Public accounting firms use statistical sampling procedures when conducting audits for their clients. For instance, suppose an accounting firm wants to determine whether the amount of accounts receivable shown on a client’s balance sheet fairly represents the actual amount of accounts receivable. Usually the large number of individual accounts receivable makes reviewing and validating every account too time-consuming and expensive. As common practice in such situations, the audit staff selects a subset of the accounts called a sample.
After reviewing the accuracy of the sampled accounts, the auditors draw a conclusion as to whether the accounts receivable amount shown on the client’s balance sheet is acceptable.
Finance
Financial analysts use a variety of statistical information to guide their investment recommendations. In the case of stocks, the analysts review a variety of financial data including price/earnings ratios and dividend yields. By comparing the information for an individual stock with information about the stock market averages, a financial analyst can begin to draw a conclusion as to whether an individual stock is over- or underpriced. For example,
Barron’s (February 18, 2008) reported that the average dividend yield for the 30 stocks in the Dow Jones Industrial Average was 2.45%. Altria Group showed a dividend yield of 3.05%. In this case, the statistical information on dividend yield indicates a higher dividend yield for Altria Group than the average for the Dow Jones stocks. Therefore, a financial analyst might conclude that Altria Group was underpriced. This and other information about Altria Group would help the analyst make a buy, sell, or hold recommendation for the stock.
Marketing
Electronic scanners at retail checkout counters collect data for a variety of marketing research applications. For example, data suppliers such as ACNielsen and Information Resources, Inc., purchase point-of-sale scanner data from grocery stores, process the data, and then sell statistical summaries of the data to manufacturers. Manufacturers spend hundreds of thousands of dollars per product category to obtain this type of scanner data. Manufacturers also purchase data and statistical summaries on promotional activities such as special pricing and the use of in-store displays. Brand managers can review the scanner
statistics and the promotional activity statistics to gain a better understanding of the relationship between promotional activities and sales. Such analyses often prove helpful in establishing future marketing strategies for the various products.
Production
Today’s emphasis on quality makes quality control an important application of statistics i n production. A variety of statistical quality control charts are used to monitor the output of a production process. In particular, an x-bar chart can be used to monitor the average output. Suppose, for example, that a machine fills containers with 12 ounces of a soft drink. Periodically, a production worker selects a sample of containers and computes the average number of ounces in the sample.
Economic
Economists frequently provide forecasts about the future of the economy or some aspect of it.
They use a variety of statistical information in making such forecasts. For instance, in foreasting inflation rates, economists use statistical information on such indicators as the Producer Price Index, the unemployment rate, and manufacturing capacity utilization. Often these statistical indicators are entered into computerized forecasting models that predict inflation rates.
Applications of statistics such as those described in this section are an integral part of this text. Such examples provide an overview of the breadth of statistical applications. To supplement these examples, practitioners in the fields of business and economics provided
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