Econ data analysis project
saizo0816
BusinessStatisticsSpr19.pptx
Business Statistics
Business Statistics
Provides financial statements of publically traded corporation in the U.S.
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.
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
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
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
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 and 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?
