Forecasting and Business Analysis of Adelaide - Case Study Example

The paper 'Forecasting and Business Analysis of Adelaide" is a good example of a finance and accounting case study. Companies are seeking to expand and attract more and better market due to the steeping competition in the economy. With this takeover, domination and sharing of markets, it is important to estimate the potential of the market so as to evaluate the feasibility of the expansion.

Through econometrics, it is possible to project the statistics of a market to determine its risk and potential, with the assumption that all the variables remain constant.

This paper gives the probable projections of the Adelaide market to Bibica, an international retail company.

Introduction to the problem

Any organization seeking to expand its business into any market, it is import should consider the Recreational Good Retail Turnover (RGRT) of the market; both past and future trends. This will enable the company to know the feasibility of the expansion, the risks and the returns expected. This paper will focus on a specific market; Adelaide.

Adelaide is the capital city of South Australia (S.A) with a population of 1,203,873 as of 2010. It was established in 28th December 1836 and is the 5th largest city in Australia. Being S.A’s capital city has made it the hub of both governmental and commercial activities. Due to its strong defence system and geographical position, Adelaide was shortlisted as one of the most livable cities in The Economist, and again by the property council of Australia in 2011.

Methodologies

Mark Blaug (1992) defines the methodology of economics as

. . . a study of the relationship between theoretical concepts and warranted conclusions about the real world; in particular, the methodology is that branch of economics where we examine the ways in which economists justify their theories and the reasons they offer for preferring one theory over another; methodology is both a descriptive discipline – “this is what most economists do” – and a prescriptive one – “this is what economists should do to advance economics” . . .

Adelaide’s RGRT shows a growing trend from 1982 to 2011. Having converted the unemployment rate (UR) and RGRT statistics into a quarterly series, makes the data easier to use, as seen in the attached file. The figures 1 and 2 below show the charts of Adelaide’s Average weekly earnings (AWE) and UR. The two are related such that, with a decrease in AWE comes a significant decrease in UR implying that the few job opportunities available are being shared among more people, which reduces the unemployment rate and also reduces the earnings per person. This, in turn, increases the return turnover because more labor is being used and more output is being produced without increasing the worker’s wages, as seen in figure 3.

valuation

Limitation

Figure 1: Unemployment Rate '95 - '97 ( in %) Figure 2: Average weekly earnings ’95 – ’97 (in $)

Figure 3: Return Turnover ’95 – ’97 (in $)

Below are quarterly series charts of the AWE, RGRT and UR of Adelaide from 1978 to 2011

KEY:

In order to make projections for the year 2012 in the Adelaide market, it is essential to use the probability approach; as proposed by Trygve Haavelmo (1944) in the linear model. The Linearity model works with the equation (y = xß + u) where (y) is a random variable with unobserved realizations, (x) is affixed observable variable and (u) represents the regression coefficients. The linear model is most appropriate for making the forecast because there’s a clear underlying relationship which is linear. (Trygve Haavelmo 1943)