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Let us suppose that a factory needs to know when certain products are increasing the profit. This factory produces an huge number of products each with different targets. So the factory need to compare their trend in a relative fashion.

So, the trend itself is not so good when comparing more products. For instance, explore this scenario:

  • product A: goes from 50 sold pieces in January to 100 sold pieces in December.
  • product B: goes from 100 sold pieces in January to 150 sold pieces in December.
  • product C: goes from 100 sold pieces in January to 200 sold pieces in December.

(for simplicity let us suppose the unit price is the same for all products and does not varies in time)

Trend of product A equals the trend of product B, but product A doubled the sold pieces. Also, trend of product B is greater than the trend of product A, while both have doubled their sold pieces.

I wonder what is a good standard indicator to capture such behaviour: an indicator that have the same value for products which double their profit. So that A and C have the same value which is greater than B.

I guess representing the trend a-dimensionally should resolve this problem: this would prevent the dependency of the number of pieces and should result in a more relative indicator.

Thanks.

EDIT: I don't have only two points: not only January and December, but let's say, a set of points for each month. Currently, as trend I use linear regression. I know that dividing this trend (which has dimension of pieces/month) by the first point will normalize it. But I find the using of the first point arbitrary. Why not the second one? why not the average?

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closed as unclear what you're asking by Joshua Ulrich, olaker Mar 23 at 14:39

Please clarify your specific problem or add additional details to highlight exactly what you need. As it's currently written, it’s hard to tell exactly what you're asking. See the How to Ask page for help clarifying this question.If this question can be reworded to fit the rules in the help center, please edit the question.

    
Your question is very unclear. How can "trend of A equal trend of B" and "trend of B is greater than trend of A"? The product prices aren't important if you're measuring how much they impact profit; you want to compare profit margin. You need to explain why a simple percent change isn't adequate. –  Joshua Ulrich Mar 23 at 14:10
    
Thanks for your comment, I've now put some edits: I have a set of points and I think that dividing for the first one is arbitrary. –  Antonio Ragagnin Mar 25 at 8:16

3 Answers 3

I can't really understand anything after the first paragraph (-1 therefore).

Making an assumption about what you meant with your first sentence, your question is how to determine whether product $A$ is going to be profitable in the future. You therefore need a forecasting model that gives $Q[Profits(t)|decision]$ (quantiles) or $E[Profits(t)|decision]$ (expectation) for each $t \in \mathbb{R}^+$ which you can discount.

This could be a combination of subjective factors (upcoming legislation that's relevant to your product, new competitor is starting up, etc) and statistical models. The model attempt that you're talking about would be the (very) beginning of an investigation on the statistical side. You would need to collect a lot of data and map this data to the next-period outcome (number of products sold of each time period, or profit from that product of each time period) using a regression/supervised learning model, and then extrapolate into the future. A simple approach would be something like ARIMA-X with seasonality and with sufficient data you can look into non-linear machine learning models. If you have insufficient time-series you can only use seasonality and time features to extrapolate since you will not be able to reduce the frequency sufficiently to achieve your objectives with exogenous features. Panel approaches may be good due to insufficient data in a univariate setting, if the products are similar.

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So why not

trend = (sales_period_end - sales_period_start) / sales_period_start

?

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And why not trend = (sales_period_end - sales_period_start) / sales_period_end? Do you know any standerd/suggested way to do it? I'd feel more secure with a already-used techniques. –  Antonio Ragagnin Mar 11 at 13:10
    
Well, basing it on the value at the start of the period gives you the increment (or decrement) over the period. I'm not sure what interpretation you could give to the value normalised over the period-end figure. –  Mau Mar 11 at 15:21

Look into indices, like the consumer price index. Your question needs more clarification though because a positive change in quantity does not necessarly translate into a positive change in profit. You need to take into account the unit price. Do all products have the same price? If not, you need compare profits not quanties. Do the prices stay constant over the observation period? If so, then a percent change in profits is enough to compare them.if the prices changed over time, then you need to build an index.

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