Description of the Problem, Sample and Population
As an accounting major, I need to analyze a company’s financials in order to get a
good idea about its operations and financial position. A major part of a company’s
position involves its expenses, or what it’s spending money on. Equally important is a
company’s net income; this is a measure of how much money is being made or lost
during the year. A profit is either retained within the company for future use, distributed
to shareholders, or both. In my project, I want to investigate the relationship between two
of a company’s important figures. I’m investigating if a company’s net income has an
effect on its operating expenses.
In my project, the independent variable will be net income. An independent
variable is used to help make a prediction about the dependent variable. The dependent
variable is the variable you wish to predict. In my project, the dependent variable is
Selling, Administrative, and Operating Expenses, which includes a company’s major
expenses necessary for running the business.
I am expecting that β1 will be positive. I am expecting this because as my
independent variable, net income (X), increases, my dependent variable, Selling,
Administrative, and Operating Expenses (Y), will increase as well. This should result in
an upward sloping, or positive sloping line, which results in a positive linear relationship.
The population I am taking a sample from is publicly held companies classified in
the broad Retail industry. I took a random sample of twenty of these companies using
Hoover’s Online, a business database. I searched within each subdivision of the Retail
industry, and selected some of the top companies within that industry.
