Licenciado

1.1 APPLICATIONS IN BUSINESS AND ECONOMICS

In today’s global business and economic environment, vast amounts of statistical informa- tion are available. The most successful managers and decision makers are the ones who can understand the information and 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 number of individual accounts receivable is so large that reviewing and validating every account would be too time-consuming and ex- pensive. The common practice in such situations is for the audit staff to select a subset of the accounts called a sample. After reviewing the accuracy of the sampled accounts, the au- ditors draw a conclusion as to whether the accounts receivable amount shown on the client’s balance sheet is acceptable.

Finance

Financial advisors use a variety of statistical information to guide their investment recom- mendations. In the case of stocks, the advisors 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 advisor can begin to draw a conclusion as to whether an individual stock is over- or undervalued. For example, Barron’s (January 10, 2000) reported that the average price/earnings ratio for the 30 stocks in the Dow Jones Industrial Average was 24.7. Philip Morris had a price/earnings ratio of

4

Data and Statistics

4

STATISTICS FOR BUSINESS AND ECONOMICS

9. In this case, the statistical information on price/earnings ratios showed that Philip Mor- ris had a lower price in comparison to its earnings than the average for the Dow Jones stocks. Therefore, a financial advisor might have concluded that Philip Morris was cur- rently underpriced. This and other information about Philip Morris would help the advisor make buy, sell, or hold recommendations for the stock.

Marketing

Electronic scanners at retail checkout counters are being used to collect data for a variety of marketing research applications. For example, data suppliers such as ACNielsen and Infor- mation 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 spent an average of $387,325 per product category to obtain this type of scanner data (Scanner Data User Survey, Mercer Management Consulting, Inc., April 1997). 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 ac- tivity statistics to

...