The Following Table Shows the Annual Revenues (In Millions of Dollars)

question 111

Short Answer

The following table shows the annual revenues (in millions of dollars) of a pharmaceutical company over the period 1990-2011. The autoregressive models of order 1 and 2, y_t = β₀ + β₁y_{t - 1} + ε_t, and y_t = β₀ + β₁y_{t - 1} + β₂y_{t - 2} + ε_t, were applied on the time series to make revenue forecasts. The relevant parts of Excel regression outputs are given below.
Model AR(1): Model AR(2): Compare Excel outputs for AR(1) and AR(2) and choose the forecasting model that seems to be better.

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Definitions:

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects revenue from its credit customers, calculated by dividing net credit sales by the average accounts receivable.

Allowance Method

An accounting technique used to estimate and account for doubtful debts, providing a more accurate representation of financial health.

Bad Debts Expense

Bad debts expense represents the portion of receivables that a company estimates it will not be able to collect.

Allowance for Doubtful Accounts

An accounting provision made by companies to account for potential future bad debts, reflecting credit sales that might not be collected.