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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Which statement best describes regression analysis as a forecasting technique?

Regression analysis estimates the statistical relationship between a dependent variable and one or more independent variables and uses it to predict future values. It differs from opinion-based methods, moving averages and the percentage of sales approach, which do not model such a relationship.

  1. AIt averages opinions of the sales force to predict demand
  2. BIt estimates the relationship between a dependent variable and one or more independent variables to predict future valuesCorrect
  3. CIt projects the future only from the average of the last few periods' values
  4. DIt prepares a forecast by assuming every item grows at the same rate as sales

Explanation

Regression is a causal quantitative method that fits a relationship between a dependent variable (such as sales) and independent variables (such as advertising spend). The first option describes a sales force opinion method, the third a moving average, and the fourth the percentage of sales method.

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