STAT 6003 : Statistics for Financial Decisions

Running Head: STATISICS FOR FINANCIAL DECISION
Statistics for Financial Decision
Name of the Student
Name of the University
Author note

2STATISTICS FOR FINANCIAL DECISION
Table of Contents
Introduction......................................................................................................................................3
Analysis of Sales in Industria, Nokaragua and Federated Island....................................................3
Statistical overview of data..........................................................................................................3
Correlation Analysis....................................................................................................................6
Multi regression analysis of Sales...............................................................................................8
Forecasted sales...........................................................................................................................9
Hypothesis testing......................................................................................................................10
Market Place for Sweden...............................................................................................................11
Forecasted Sales of Sweden.......................................................................................................13
Recommendation...........................................................................................................................14
Conclusion.....................................................................................................................................15
Appendix........................................................................................................................................16

3STATISTICS FOR FINANCIAL DECISION
Introduction
The report aims at evaluation for development of sales of Schmeckt Gut in the three
different countries- Industria, Nokaragua and the Federal Island for the last 25 years. Using the
given data for past 25 years, sales figures from 2016 to 2020 are forecasted. Different factors are
taken as determinants of sales. These are Gross Domestic Product, Average Price Index,
Population, Survey score, number of advertisement and number of stores. Before estimating the
relation, the correlation among sales and variables such as advertisement, number of stores and
survey results are analyzed using correlation matrix. Multi regression models are constructed for
analyzing relation of sales with each of the variables and the estimated regression models are
used to forecast the future sales for each of the country.
In the next part of the report, the business scenario in the Swedish market. Schmeckt Gut
has recently planned to expand its business in the Swedish market. The design of the business
strategy depends on the trend in sales in the market. Since, the sales data for Sweden are missing;
a country closely related with Sweden is takenand sales figures of this country is used for
Sweden. Finally based on the analysis, suggestions are given for further expansion of sales in
these countries.
Analysis of Sales in Industria, Nokaragua and Federated Island
Statistical overview of data
Data considered for the analysis are Sales figures, data on Gross Domestic Product,
Average Price Index and population of the age 15 to 65 years, Survey score, number of
advertisement score and number of stores.

4STATISTICS FOR FINANCIAL DECISION
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
0
5000000
10000000
15000000
20000000
25000000
Comparison of Sales
Federated Islands
Industria
Nokaragua
Year
Sales (in US$)
Figure 1: Sales Comparison of Industria, Nokaragua and Federated Island
In Industria, the Sales trend shows an overall upward rising trend. Though there are some
fluctuations in some years, but the overall sales increase in the last 25 years. For Naukaragua, the
sales figures shows an upward trend like Industria. However, sales in Naukargua is lower than
Industria in all the accounted year and less fluctuating. The lowest sales are observed for market
in Federated Island with trend being almost flat over the 25 years.
1991
1994
1997
2000
2003
2006
2009
2012
2015
0
50000000000
100000000000
150000000000
200000000000
250000000000
300000000000
Comparison in GDP
Federated Islands
Industria
Nokaragua
Years
GDP (in US $)

5STATISTICS FOR FINANCIAL DECISION
Figure 2:GDP Comparison of Industria, Nokaragua and Federated Island
Gross Domestic Product in Naukaragua exceeds that in Industria and Federated Island. Both
Industria and Naukaragua shows an upward trend in the GDP and the GDP gap between these
two nations are narrowing over time. Federated Island lagged much behind Inustria and
Naukaragua.
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
0
1
2
3
4
5
6
7
8
Comparison of Price Index
Federated Islands
Industria
Nokaragua
Year
Average Price Index (in %)
Figure 3: Comparison of Price index of Industria, Nokaragua and Federated Island
Average prices reveal a surprising trend. While sales and GDP in Federated Island remain
almost stagnant, there is high fluctuation in the price index trends. The price index is higher and
fluctuating as compared to two other nations. For Industria and Nokaragua the price index
remain almost at the same level and overlap in some years.

6STATISTICS FOR FINANCIAL DECISION
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
Population
Federated Islands
Industria
Nokaragua
Year
Population (15 - 65 Years)
Figure 4: Population Comparison of Industria, Nokaragua and Federated Island
The population trend in Noukaragua is almost stable but the population is higher than two
other nations. In Industria, population shows a rising trend but at a relatively slow rate. In
Federated Island Population is very lower as compared Industria and Noukaragua.
Correlation Analysis
Correlation shows the degree of association among the variables. The correlation between
sales development and advertisement, number of stores and survey scores for three respective
countries are analyzed.
Federated Islands
Table 1: Correlation matrix for Federated Island
Sales US$
Survey
score Advertisement Stores
Sales US$ 1
Survey score 0.589 1
Advertisemen
t 0.986 0.548 1

7STATISTICS FOR FINANCIAL DECISION
Stores 0.971 0.529 0.971 1
In Federated Island, the correlation coefficient between sales and survey score is 0.589.
For other two indicators of sales, advertisement and stores the correlation co-efficient are 0.986
and 0.971 that is almost equal to 1. Therefore, Sales in Federated Island is almost perfectly
related with advertisement and stores.
Industria
Table 2: Correlation matrix for Industria
Sales
US$
Survey
score Advertisement Stores
Sales US$ 1
Survey score -0.201 1
Advertisemen
t 0.913 -0.202 1
Stores 0.916 -0.231 0.970 1
In Industria, correlation between sales and survey score is -0.021. The negative sign implies an
inverse relation between sales and satisfaction level. For advertisement and stores,the correlation
coefficients are 0.913 and 0.916. This shows a strong positive correlation between these
variables.
Nokaragua
Table 3: Correlation matrix for Nokaragua
Sales
US$
Survey
score Advertisement Stores
Sales US$ 1
Survey score 0.02 1
Advertisemen 0.99 0.00 1

8STATISTICS FOR FINANCIAL DECISION
t
Stores 0.99 0.01 0.99 1
The Sales and Survey score have a very weak positive relation with correlation
coefficient being 0.02. The correlation coefficient for both Advertisement and stores are 0.99.
Hence, Saleis perfectly correlated with Advertisement and stores.
Multi regression analysis of Sales
A multi regression analysis is conducted to estimate the relation between sales and other
variables such as GDP, price index, population, satisfaction score, advertisement and stores. The
equation to be estimated is
lnSalest =α0 +α1 lnGDPt + α2 lnPriceIndext +α3 lnPopulationt +α 4 lnSatisfactiont +α5 lnAdvertisementt +α 6 lnStorest +
From the regression results, the estimated sales equation for the three countries is as follows
Federated Island
lnSalest =12.76+ 0.07 lnGDPt −0.13 lnPriceIndext −0.35 lnPopulationt + 0.08lnSatisfactiont + 0.87 lnAdvertisemen
The coefficient of lnGDP is positive. This means an increase in GDP is expected to increase
sales. However, whether GDP is a definite determinant of sales that depends on the statistical
significant of the concerned variable. The significance of the variable is determined from the P
value. For, GDP the P indicates a non-significance with p value being greater than 5% level of
significance. The relation between sales and price index is negative as indicated rom a negative
coefficient value. The regression result gives significant coefficient for price index. In Federated
Island, population of age 15-65 years inversely affects sales. This is another significant variable

9STATISTICS FOR FINANCIAL DECISION
for thee model. The other three variables satisfaction score, advertisement and stores have
positive significant relation with sales.
Industria
lnSalest =8.40+0.08lnGDPt −0.27 lnPriceIndext +0.12lnPopulationt +0.18 lnSatisfactiont +0.84 lnAdvertisementt
In Industria, all the variables except price index have positive influence on sales. Therefore,
increases in these variables increase sales. However, for price index a rise in average price index
causes a decline in sales. The variable population and stores are statistically insignificant. The
other variables are statistically significant and hence have significant influence on sales.
Noukaragua
lnSalest =−5.98+ 0.22lnGDPt −0.03lnPriceIndext +0.91 lnPopulationt + 0.14 lnSatisfactiont +0.37 lnAdvertisemen
Sales in Noukaragua depend positively on GDP, population, satisfaction level, advertisement and
number of stores. The average index inversely affects sales as in case of two other countries.
Most of the variables are statistically significant. The variable population does not show
statistically significant result. Therefore, sales in Noukaragua do not depend much on population.
Forecasted sales
Using the multiple regression results sales from 2016 to 2020 are forecasted for
Federated Island, Industria and Nokaragua. Computation of forecasted sales requires the values
of the independent variables. Therefore, using the values of past year, the projection is made for
these variables for the next five years. The forecasting is done using the ordinary least square
estimate of time series analysis. The OLS estimation is given as

10STATISTICS FOR FINANCIAL DECISION
Y t =a+ bt
Where,
Yt : the value of the variable at time t
a: intercept
b: slope efficient
t: time
Using this equation the forecasted values of GDP, price index, population, survey score,
advertisement and number of stores are used for forecasting sales values from 2016-2020. The
forecasted sales for the three nations are summarized in the following tables
Table 4: Forested Sales from 2016 to 2020
Year
Federated
Island Industria
Nokaragu
a
2016 1040319.929
23989636.1
6 11784778
2017 1091882.914
23691946.7
4 12067164
2018 1128261.387
24252235.7
4 12467148
2019 1165851.888
24825774.9
7 12880389
2020 1204694.8
25412877.7
9 13307328
Hypothesis testing
The variables those are more likely to affect sales are Gross Domestic Product, Price
Index and Population. Past year values are used to project values in the coming years. In order to

11STATISTICS FOR FINANCIAL DECISION
examine how accurate is the forecasted estimate is, two-sample t test are used. The testing
constitute following hypotheses
Null Hypothesis (H0): There is no significance difference between the actual value and
forecasted value
Alternative Hypothesis (H1): The predicted value differs significantly from the actual value.
Fedarated Island
The t test result of GDP series shows rejection of null hypothesis indicating that
forecasted value differs from the actual value. For Price index however, the projected value is
not different from actual values. Therefore, the forecasting of price index is more or less
accurate. The forecasting for demographic trend of population of age 15-65 is different from
actual values.
Industria
For Industria, the forecasted GDP is different from the actual GDP as suggested from the
result of t test where the P value is less than the significance level of 5%. The forecasted average
price index is close to actual values of price index. Based on the t test result, it can be said that
the population projection does not match with its actual level.
Nokaragua
Neither of the forecasted values for Nokargua matches with its original values. The
predicted values of GDP, price index and population are different from the actual values.

12STATISTICS FOR FINANCIAL DECISION
Market Place for Sweden
After analyzing the market scenario in Federated Island, Industria and Nokaragua, the
market condition in Sweden is analyzed. For Sweden, no sales data are available. Only GDP and
population data for Sweden are given. The sales data of one chosen country is to be used as a
proxy for Sweden.
Table 5: Comparison of Per capita GDP
Country
Average Per Capita
GDP
Sweden 48193.51
Fedarated
Island 17664.78
Industria 48674.71
Nokaragua 48018.44
Per capita Gross Domestic product and Price index are two important macroeconomic
indicators of nation. Per capita Gross Domestic Product is obtainedby dividing gross domestic
product with the population. This measure of average income used to analyze living standard of
nation. Two nations having same level of per capita GDP often said to have same level of GDP.
The close per capita GDP indicates similar characteristics between two nations. The per capita
GDP for Sweden is 48193.51. Per capita GDP measures of Federated Island, Industria and
Nokaragua are 17664.78, 48674.71 and 48018.43 US dollar respectively. In terms of Per capita
GDP Nokaragua is close to Sweden.

13STATISTICS FOR FINANCIAL DECISION
Table 6: Comparison of average price index
Country Average Price Index
Sweden 2.14
Fedarated
Island 5.31
Industria 2.46
Nokaragua 2.04
Apart from GDP another important economic indicator is price index. Price index shows
the relative prices of a selected basket of goods in two different periods. It is a measure of
average price level in the nation. A gradual increase in the price index indicates an inflationary
situation while a decrease in the price index shows a gradual downturn of the price level. The
average price indexes of three nations are compared with that of the Sweden. The average price
index for Sweden is 2.14 percent. In Federated Island, Industria and Nokaragua are 5.31, 2.46
and 2.04 respectively. The price index of Nokaragua is close to Sweden.
Therefore, both in terms of GDP and Price index, the nation Nokaragua is similar to Sweden.
The sales data of Nokaragua is used for sales prediction in Sweden.
Forecasted Sales of Sweden
The sales prediction of Sweden is done by estimating a multi regression model of sales as
like three other nations. The estimated sales equation for Sweden is
lnSalest =−9.51+ 0.17 lnGDPt −0.02 lnPriceIndext +1.19 lnPopulationt +0.15 lnSatisfactiont +0.08 lnAdvertisemen

14STATISTICS FOR FINANCIAL DECISION
The regression result indicates a positive relation of sales with all the explanatory variables
except price index. The variable ln(Advertisement) is not statistically significant. The sales
therefore do not depend on the advertisement. All other variables have significant influence on
sales.
Table 7: Forested Sales of Sweden from 2016 to 2020
Year Sweden
2016 3139444.446
2017 6281734.07
2018 6426685.544
2019 6612705.299
2020 6802194.567
The forecasted values of the explanatory variables are used estimated regression equation
and the sales for the coming four year are predicted. The forecasted sales values increases every
years.
Recommendation
The analysis of sales trend shows sales is highest in Industria, followed by Nokaragua
and Federated Island. Therefore, it is profitable for the company to expand its business in
Industria. Despite having higher population than Industria, Nokaragua has sales lower than
Industria. The company should increase advertisement and number of stores to increase their
sales in Industria. The lowest sales are accounted in Fedaratred Island. Hence, the business
should do the needful to expand sales in Federated Island. The regression results show a negative
effect of price index on sales. The price index is higher and most fluctuating for Federated
Island. Perhaps this is one reason of lowest sales in the nation. The company should set a lower
price to increase sales. Finally, in the recently entered Swedish market the company has

15STATISTICS FOR FINANCIAL DECISION
significant scope of raising sales as suggested from an increasing trend in the forecasted sales.
Entering in the new market is therefore profitable.
Conclusion
The paper analyzes Schmeckt Gut’s sales trend in the existing markets of Federated
Island, Industria and Nokaragua. The highest sales trend is observed for Industria. This reflects
profitable operation of the company in Industria market. The sales for next five year 2016-2020
are forecasted for all the three nations. An increasing sale is forecasted for the three nations. The
company recently considered entering in the Swedish market. The decision of the company
depends on the projected sales figures in Swedish market. Sweden has similar characteristics
with that of Nokaragua. The projected sales for Swedish market are increasing as like
Nokarogua. The company can therefore expand its business in Swedish market. However, the
company should focus of increasing advertisement, number of stores or satisfaction level to
expand sales in the existing markets.

16STATISTICS FOR FINANCIAL DECISION
Appendix
Multi regression for Federated Island
Regression Statistics
Multiple R 0.998
R Square 0.996
Adjusted R Square 0.994
Standard Error 0.020
Observations 25.000
ANOVA
df SS MS F Significance F
Regression 6.0 1.7 0.3 711.5 0.0
Residual 18.0 0.0 0.0
Total 24.0 1.7
Coefficient
s
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Intercept 12.76 1.01
12.6
6 0.00 10.64 14.88
Ln GDP US$ 0.07 0.05 1.27 0.22 -0.04 0.17
Ln Price index -0.13 0.02 -7.62 0.00 -0.17 -0.09
Ln Population 15-65 -0.35 0.14 -2.59 0.02 -0.63 -0.07
Ln Survey score 0.08 0.02 3.41 0.00 0.03 0.14
Ln Advertisement 0.87 0.09 9.31 0.00 0.67 1.06
Ln Stores 0.23 0.08 2.95 0.01 0.07 0.39
Multi regression for Industria
Regression Statistics
Multiple R 0.995
R Square 0.990
Adjusted R Square 0.987
Standard Error 0.022
Observations 25.000

17STATISTICS FOR FINANCIAL DECISION
ANOVA
df SS MS F Significance F
Regression 6.00 0.93 0.16 310.08 0.00
Residual 18.00 0.01 0.00
Total 24.00 0.94
Coefficient
s
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Intercept 8.40 3.11 2.71 0.01 1.88 14.93
Ln GDP US$ 0.08 0.04 2.15 0.05 0.00 0.16
Ln Price index -0.27 0.02
-
17.04 0.00 -0.30 -0.23
Ln Population 15-65 0.12 0.27 0.46 0.65 -0.43 0.68
Ln Survey score 0.18 0.05 3.56 0.00 0.08 0.29
Ln Advertisement 0.84 0.18 4.72 0.00 0.47 1.21
Ln Stores 0.29 0.23 1.25 0.23 -0.19 0.77
Multi regression for Nokaragua
Regression
Statistics
Multiple R 0.999
R Square 0.998
Adjusted R Square 0.998
Standard Error 0.012
Observations 25
ANOVA
df SS MS F Significance F
Regression 6 1.44 0.24 1706.78 0.00
Residual 18 0.00 0.00
Total 24 1.44

18STATISTICS FOR FINANCIAL DECISION
Coefficients
Standard
Error t Stat P-value Lower 95% Upper 95%
Intercept -5.98 15.63 -0.38 0.71 -38.81 26.86
Ln GDP US$ 0.22 0.06 3.49 0.00 0.09 0.35
Ln Price index -0.03 0.01 -4.74 0.00 -0.05 -0.02
Ln Population 15-
65 0.91 1.12 0.81 0.43 -1.44 3.26
Ln Survey score 0.14 0.03 5.17 0.00 0.09 0.20
Ln Advertisement 0.37 0.09 4.06 0.00 0.18 0.55
Ln Stores 0.31 0.06 5.37 0.00 0.19 0.43
Multi regression for Sweden
Regression Statistics
Multiple R 0.999
R Square 0.998
Adjusted R Square 0.997
Standard Error 0.013
Observations 25
ANOVA
df SS MS F Significance F
Regression 6 1.438 0.240 1342.399 0.000
Residual 18 0.003 0.000
Total 24 1.441
Coefficient
s
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Intercept -9.52 6.83 -1.39 0.18 -23.86 4.82
ln GDP US$ 0.17 0.04 4.02 0.00 0.08 0.26
ln Price index -0.02 0.01 -2.82 0.01 -0.04 -0.01
ln Population 15-
65 1.19 0.46 2.56 0.02 0.22 2.16
ln Survey score 0.15 0.03 4.58 0.00 0.08 0.22
ln Advertisement 0.08 0.14 0.59 0.56 -0.21 0.37
ln Stores 0.50 0.08 6.70 0.00 0.35 0.66

19STATISTICS FOR FINANCIAL DECISION