Regression+ Essay

732 words - 3 pages

The Results In the second example, we looked at the relationship between sales dollars and inventory dollars. Taking the same sample twelve-month sample of numbers from 2005 provided the data for the second equation. We plotted the values on a graph, with sales on the x-axis and inventory on the y-axis. If there were a perfect linear relationship between inventory dollars and sales dollars, then all 12 points on the graph would fit on a straight line. However, as expected, this is not the case for the second graph. A similar linear relationship between sales dollars and inventory dollars was found compared to the first graph of inventory and sales dollars. As the dollar amount of inventory ...view middle of the document...

However, some relationships disappear because the variables do not have unique contributions to each other. The major conceptual limitation of all regression techniques is that one can only ascertain relationships, but never be sure about underlying causal mechanism If the sales dollars declined but the inventory dollars continued on an upward slope, the relationship between the two would disappear. The same is true if the inventory dollars declined and the sales dollars continued on an upward slope. This is known as the limitations of a regression analysis. Significance of Results In completing the regression analysis, the conclusion is that there seems to be a linear relationship between inventory and sales dollars. After plotting the values two different ways and on two different graphs, we have concluded that as the dollar amount of sales rise, so does the inventory. The relationship was unexpected since inventory control personnel at DBP do not coordinate information from the sales teams when making inventory control decisions. Sale and inventory are in fact independent of each other. It seems like common sense that with a rise of sales a company would increase the inventory levels....

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