Study of the Forbes 500
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Transcript of Study of the Forbes 500
Group 8Masatoshi Hirokawa, Han Liu,
Christian Mundo, Ashley Arlotti,
Jingyu Nie, and Aygul Nagaeva
What?
The Forbes 500 includes the top companies of each major industry
Data includes sales, profits, market-value, assets, cash-flow, and employees of each company
Industries included are energy, finance, transportation, hi-tech, manufacturing, communication, medical, and retail
Why?
Understanding the correlation of variables in an industry gives insight to:HealthGrowthValue
How?
To understand the correlation we used Ordinary Least Squares to create regression equations
If values were questionable further analysis is done through White’s test (Testing for heteroskedasticity)
Variables Used Facts about companies selected from the Forbes 500 list
for 1986. This is a 1/10 systematic sample from the alphabetical list of companies. (Data found at: http://lib.stat.cmu.edu/DASL/Datafiles/Companies.html)
Sales: Amount of sales (in millions) Assets: Amount of assets (in millions) Market_Value: Market Value of the company (in millions) Profits: Profits (in millions) Cash_Flow: Cash Flow (in millions) Employees: Number of employees (in thousands) Sector: Type of market the company is associated with
Total Sales by Sector
Sector Proportions
Regression Before Grouping
Dummies:1.Other2.Energy3.Finance4.Transportation5.Hi-Tech6.Manufacturing7.Communication8.Medical 9.Retail
Dropping Variables
All remaining variables are significant
Only dum3 is left, representing the financial sector
Adding Profits•Until this point we have left profits out of the regression because of its relationship with sales
Regression of Profits vs Sales
•This is the regression performed with profits as the dependent variable and Sales as the independent variable
Profits vs Sales
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White’s TestSince the Profits vs Sales regression had a negative correlation coefficient we did extra analysis with the White’s Test to find heteroskedasticity in the residuals
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Regression Before Grouping
Dummies:1.Other2.Energy3.Finance4.Transportation5.Hi-Tech6.Manufacturing7.Communication8.Medical 9.Retail
Wald’s TestIn order to group all of the Dummy variables we used a Wald’s Test from the equation:SALES = C(1)*MARKET + C(2)*EMPLOYEE + C(3)*CASHFLOW + C(4)*ASSETS + C(5)*ENERGYD2 + C(6)*FINANCED3 + C(7)*TRANSPORTATIOND4 + C(8)*HITECHD5 + C(9)*MANUFACTURINGD6 + C(10)*COMMUCATIOND7 + C(11)*MEDICALD8 + C(12)*RETAILD9
Regression After Grouping
•Dummy Negative includes finance (dum3), hi-tech (dum5), Communication (dum7), and Medical (dum8)•Dummy Positive includes energy (dum2), transportation (dum4), manufacturing (dum6), and retail (dum9)
Final Equation SALES = 61.25792336(EMPLOYEE) +
0.222356458(ASSETS) + 1.405446264(CASHFLOW) - 897.3202179(DUMNEG )+ 710.3874293(DUMPOS)
Every 1000 employees generates about 61 million dollars in sales
Every dollar in assets gives .22 in sales Every dollar of cash flow correlates to 1.4 in sales Depending on the sector, there is a negative or positive effect on
sales
Conclusion The only insignificant variable in
determining the number of sales for a company or industry is market-value
Profits is negatively correlated with number of sales which could be because of its heteroskedastic error or increase in production cost
Grouping dummy variables for sector together helped to make a more significant regression.