FREE online courses on Refresher on Financial Planning - Chapter 4 - Regression Analysis

 

A statistical approach can be used for forecasting. We can rely on the average relationships between a dependent variable and an independent variable. Simple regressions look at one independent variable (such as sales pricing or advertising expenses) whereas multiple regressions consider two or more variables (such as sales pricing and advertising expenses together). Regression analysis is very popular for forecasting sales since it helps us find the right fit over a range of observations. For example, if we plot out the following observations, we can prepare a scatter graph and find the right fit:

 

       Advertising Expense               Sales Dollars

          $ 100                               $ 1,500

150                                    1,560

180                                     1,610

220                                     1,655

270                                     1,685