econ 301 project

Business Statistics

Business Statistics  EDGAR

 Provides financial statements of publically traded corporation in the U.S.

 Company Size?

 Sales  High sales may be misleading due to pass-through production.

 Appropriate in researching market control in a certain industry.

 Assets  Rarely bought and sold so depreciation after purchase must be estimated.

 Market Value  Stock market assessment of value.

 Volatile measurement.

 Appropriate when researching corporate takeovers.

 Profits  Appropriate in researching likely success of a firm.

 Employment  Less ambiguous than sales or asset valuations.

 Applicable to all firms, incorporated or not.

 Can use household and business surveys.

 Labor intensive industries show up as “larger” despite having less sales, assets, or market value.

Business Statistics  Anti-trust Legislation

 FTC Enforcement

 Sherman and Clayton Acts prohibit firms from “monopolizing” and/or

“substantially lessening competition”

 Measurements:  HHI: Calculated as the sum of squared market shares for the top 4-8 firms.

 Max is 10,000 for a monopoly.

 DOJ & FTC flags a 200pt increase for an HHI above 2500 when evaluating mergers.

 Definition of “market” impacts policy and anti-trust investigation.

 NAICS (North American Industry Classification System)

 Business Failures  BLS Data

 Suggests “20% of businesses fail within 2 years and over half fail within 5 years.

 Does not include firms without employees (derives from unemployment insurance records).

 High failure rates may be exaggerated due to low-barrier industries that stop and start

frequently.

 Misleading Profits  Owners may pay themselves a salary making profits look lower.

 Rates can be over or understated depending on the denominator.  For Chevron net income as a percentage of sales is around 8% but yield to shareholders is closer to 4%.

Business Statistics  Stock Market Indexes

 DJIA: Oldest index (1885) consisting of 30 stocks weighted by price and representing ≈

25% of the market.

 S&P 500: 500 stocks weighted by market cap representing ≈ 80% of the market.

 NASDAQ: IT heavy index consisting of over 3000 stocks weighted by market cap.

 Broader indexes better represent the overall stock market but may not be as widely

utilized (i.e. Wilshire 5000)

 Predicting the Stock Market  The Efficient Market Hypothesis-Random Walk Theory.

 Luck or Skill?

 1988 WSJ Monkey Dart-Throwing Contest

 Professional investors won 61 of 100 contests, monkey’s won 39.

 Investors may have been aided by market followers.

 If skill, consistency should exist.

 BusinessWeek found only 4 out of 900 funds consistently stayed in the top quarter of funds

between 2001-2006.

 Most studies show professional money managers do not regularly beat the market.

 What about Warren Buffet and Peter Lynch?