Lct20 - Introduction to Business Statistics Lecture 20...

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1 Introduction to Business Statistics Lecture 20 Introduction to Regression Example 1. You, as the general manager, need to decide how much your company should spend on research? Many departments, marketing, engineering, human resources, compete for larger share of the budget. P / E ratio = price per share earning per share R / S ratio = research spending total spending What is the relationship between P/E ratio and R/S ratio?
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2 COMPANY P/E RATIO R/S RATIO 1 5.6 .003 2 7.2 .004 3 8.1 .009 4 9.9 .021 5 6.0 .023 6 8.2 .030 7 6.3 .035 8 10.0 .037 9 8.5 .044 10 13.2 .051 11 8.4 .058 12 11.1 .058 13 11.1 .067 14 13.2 .080 15 13.4 .080 16 11.5 .083 17 9.8 .091 18 16.1 .092 19 7.0 .064 20 5.9 .028 Source : Wallin, C.C. and Gilman, J.J. “Determine the optimum level for R&D spending.” Research Management , Vol. 14 No. 5, 1986, pp. 19-24
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3 Example 2. To go global, how much should your company invest overseas? Is your company doing reasonably well on overseas investments? Percentage of foreign revenue Percentage of foreign assets What is the relationship between these two variables? Regression analysis studies imperfect relationships between variables. Examples of perfect relationships: F ma = , ar = π 2
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4 FIRM FRGN Rev. (%) FRGN Assets (%) Exxon 73.2 55.8 IBM 58.9 48.6 GM 26.6 25.2 Mobil 64.7 51.1 Ford 33.2 26.9 Citicorp 52.3 39.4 DuPont 39.8 29.5 Texaco 42.3 26.6 ITT 43.3 23.6 Dow 54.1 44.9 Pr&Gmb 39.9 32.2 Ph.Mrs 19.6 14.8 Kodak 40.9 28.0 Digital 54.1 44.2 GE 12.4 8.8 U. Tech 32.9 26.7 Amoco 26.1 32.7 HP 53.3 38.7 Xerox 34.6 25.4 Chevron 20.5 22.6 Source : Forbes , July 23, 1990 pp. 362-363
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Lct20 - Introduction to Business Statistics Lecture 20...

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