Basic Forensic Accounting Techniques

I continue my series on forensic accounting techniques:

Growth analysis focuses on changes in ratios over time. For example, you may plot annual revenue, cost, and net margin by year. Doing this gives you an idea of how the company is doing: if costs are flat but revenue increases, you can assume economies of scale or economies of scope are in play and that’s a great thing. If revenue is going up but costs are increasing faster, that’s not good for the company’s long-term outlook.

For our data set, I’m going to use the following SQL query to retrieve bus counts on the first day of each year. To make the problem easier, I add and remove buses on that day, so we don’t need to look at every day or perform complicated analyses.

I get into quite a bit in this post, including a quick tour of multicollinearity, which is only my second-favorite of the three linear regression amigos (heteroskedasticity being my favorite and autocorrelation the hanger-on).

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