Lecture Data ans statistics Applications in Business and Economics

Lecture 1. Data ans statistics
Applications in Business and Economics
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.