As sales revenue has a direct relationship with the amount of profit that the company makes, our company Bulls and Bears Financial Ltd. has also analysed profitability of Foster's group on annual basis. Now the amount of profit made by the company has a direct impact in the amount of dividends paid back to the shareholders, so we have forecasted the value of earnings per share as well. Earnings/share Forecasting value will help us in knowing if it would be profitable to invest in this company or not.
Profitability
Our company has used Foster's profit data for past ten years i.e. from 1998-2007 for analysing and forecasting the profitability of the company for the year 2008. Linear Regression Line model was used to forecast the profit value for the year 2008. Using this model we plotted the graph between sales and net profits.
Linear Regression Line Model for Profitability
From the above graph of Profitability, we can clearly see that the data points are scattered whereas there is a linear trend in the forecast value. This clearly indicates that although the correlation (r) between the two variables is positive i.e. 0<r<1, but still the two variables are not very closely related to each other. This non-linear relationship between the two data may be due to the seasonality in the value of sales.
Using the slope and the intercept function in the Excel Sheet, the values of both the parameters were calculated. The value for intercept was calculated as ?a= -160.0836' and the value for slope as ?b=0.1927'. We analysed profitability on the following categories:
? Error analysis
The error is given by the difference between the demand and the forecast values. The error analysis is obtained ...