Descriptive Statistical Measures In The US Rail Industry

Assume your boss has asked you to prepare a report using various statistical measures which are descriptive in nature. The details of the paper remain as discussed in the class. The idea of the paper is to present the pattern of data using the following measures,

· Mean,
· Median, and
· Index numbers

What is Indexing?

What is Indexing?

In the business field, it is often imperative to keep track of various aspects related to business performance. Factors such as the financial performance of a business, employee attrition and rate of competition etcetera, are key in determining the overall performance of the business therefore contributive to the decision-making process by the executive. As such, definition of performance indicators should be clear and concise so as to determine how well a business is doing. In the measurement of business growth, it is especially fundamental to determine how the performance differs over a specified period of time. According to Merritt (2018), one such measure is the use of Laspeyres index which seeks to compare prices of a commodity today as compared to a historical price. Moreover, in defining Composite index, Kenton (2018) argues that, it is “a grouping of equities, indexes or other factors combined in a standardized manner in order to provide a useful statistical measure of overall market or sector performance over time.”

The united states Rail industry has seen tremendous growth since its conception and more especially over the recent years. This paper therefore focuses on the United States Rail market with an emphasis on the historical stock price of Canadian National Railroad and Norfolk Southern Railway.

CNI is ranked among the largest North American transportation and logistics company (Gravenhurst, 2018), Incorporated in June 1919, CNI is according to an article by Tucker (2009) “…the longest railway system in North America.” As of 2016, Canadian National controlled up to 32,100 Km of rail in America and Canada, employed 22,.000 persons and made a revenue of over $12 Billion, with an average annual revenue totaling to $8.38 billion (Lindahall, 2015). The firm is headed by Jean-Jacques Ruest as its C.E.O and President (Tucker, 2009). The Canadian National engages in a wide range of business activities such as intermodal, petroleum, chemicals, automotive etcetera.

Boasting of approximately 22, 000 miles in 22 states, it was first adopted as a holding company for “Norfolk & Western Railway and Southern Railway” as of June 1982 (Lindahall, 2015). The firm later changed its name to Norfolk Southern Railway after becoming the parent firm’s subsidiary. As at the end of the financial year 2015, Norfolk Southern had a net revenue of $10.51 billion with 30,943. One of the key persons in the firm is its chairperson and C.E.O James A. Squires (Lindahall, 2015).

Market

To apply descriptive statistical measures in the analysis of historical data from transport industry companies in the US.

Secondary data is used as the main data source for this study due to the nature of the paper’s objective. The data which is obtained from www.statcan.gc.ca contains historical data on stock prices for both Canadian National and Norfolk Southern railroad companies. It provides information on the annual stock price from the year 2008 to 2019. Consequently, the data variables include:

1. Average Stock price
2. Year Open

• Year High

1. Year Low
2. Year Close
3. Annual % Change

In this paper, composite index will be the data indexes which are combined in a standardized manner so as enable drawing of key statistical measure of overall market or sector performance over time. Given the historical data available, the Price-Weighted Composite index would be appropriate for our analysis. The Price-Weighted Composite is calculated through summing the components (share prices) then dividing them by their respective number of components (1 in each case given this data).

The Laspeyres index involves a method with which to determine and show the comparison of current to the same item’s price at some point in a firm’s past.

Inflation=_t.Q_o)/(P_o.Q_o))

Where: P_t are the prices today, P_o is the previous period prices, and Q_o are the volume of items.

It is given by:

Inflation=_t.Q₁)/(P_o.Q₁))

Where: P_t are the prices today, P_o is the previous period prices, and Q_1, the volume of items today.

Table 1: Norfolk Southern Descriptive statistics

Table 2:Norfolk Southern

From table 1 and 2, the mean average of the stock price for Norfolk Southern between 2008 and 2019 is $84.3678 while the mean average stock volume is 2,57,4,241. The highest number of stock sold is 4,517,841 with the least number of stock being 1,717,368.

Table 3: Descriptive Canadian National

Table 4: Canadian National

From table 3 and 4, the mean average of the stock price for Canadian National between 2008 and 2019 is $79.88 while the mean average stock volume is 7,354,499. The highest number of stock sold is 20,186,775with the least number of stock being 3,647,444.

Figure 1: Norfolk Index Stock price

Figure 2:Norfolk Southern stock volume

Upon taking year 2008 as the base year, it is evident that there was a decrease in the price of stock in Norfolk Southern between the year 2008 ($45) and 2009 ($33.5) after which there was a constant increase in the stock price from the year 2010 to 2014. In 2015, the average stock price fell through to the year 2016 and rose again from 2017 to 2019 which marks the highest stock price for the company. Interestingly, from figure 2, the trend for the stock volume sold does not follow that of the stock price i.e. the trend is approximately inverse where a high stock price does not necessarily imply a high stock volume.

Canadian National

Figure 3: Index Stock price Canadian National

Figure 4: volume of stock for UP

From figure 3 and 4, it is evident that there was a decrease in the price of stock in Canadian National between the year 2008 and 2009 after which there was a constant increase in the stock price from the year 2010 to 2014. In 2015, the average stock price fell through to the year 2016 and rose again from 2017 to 2019 which marks the highest stock price for the company. Interestingly, from figure 2, the trend for the stock volume sold does not follow that of the stock price i.e.

Composite index is combined in a standardized manner so as enable drawing of key statistical measure of overall market or sector performance over time (Dhammi and Haq, 2016)

The base stock price for Norfolk Southern Railroad firm is $44.9786 while the base stock volume is 4352154.15. We set the target for both the stock price and stock volume to be $70 and 20,000,000 respectively.

After calculating the composite index, the KPI for stock over the years for the NS firm is 40% while for CNI is 28% as shown below.

Table 5: Norfolk Southern

Table 6: Canadian National

Figure 5: Laspeyres index for Norfolk Southern

Figure 6: Laspeyres index for Canadian National

From figure 5, there is an increase in the Laspeyres index indicating an inflation in the price of the stock for both companies. According to BDF (2017), the Laspeyres index is used to measure inflation and has a major weakness of being upward biased which can be inferenced from the graph. As such, the inflation rate for both firms has been increasing steadily since 2016 to 2019.

It is generally a consumer price index for calculation of inflation (BDF, 2017).

Figure 7: Paasche index for Canadian National

Figure 8: Paasche index for Norfolk Southern

Figure 7 and figure 8 show a different trend where the Paasche indices are lower than the Laspeyres  indices hence supporting Zaiontiz (2016) who suggests that Paasche is more accurate index in measuring inflation than the Laspeyres though they are both upward biased.

Conclusion

Factors such as economic policies of country, competition, management have been known to affect business performance and hence a firm’s stock price. In measuring performance of companies across countries, there are many macro-economic and micro-economic factors that affect business operations therefore the performance of the focus companies is prone to be different as evidenced from this study. Moreover, given the results of this study it is clear that: the use of statistical measures is fundamental in understanding the underlying structure of business a data as well as provision of a basis on which to draw inferences concerning the focus data. Moreover, the measure of central tendency gives the general distribution of the factors that are being measured hence are important in introducing the general performance of a business up to a given point to any person of interest.

References

Breaking Down Finance (BDF). (2017). Finance Topics. Retrieved from:

https://breakingdownfinance.com/finance-topics/finance-basics/laspeyres-index/ 

Dhammi., K. and Haq, R. (2016). What is Indexing? Indian Journal of Orthopaedics, 50(2)

pp.115–116. DOI: 10.4103/0019-5413.177579

Gravenhurst Capital. (2018). America Vs. Canada's Best Railroad Company - Union Pacific

and Canadian National Railway. Retrieved from:

https://seekingalpha.com/article/4138509-america-vs-canadas-best-railroad-company-union-pacific-canadian-national-railway

Kenton, W.(2018). Insights: Composite Index. Markets & Economy, 3(7), pp. 23-42.

Lindahall. (2015). Brief history of railway building in US. Retrieved from:

www.railroad.lindahall.org/essays/brief-history.html

Merritt, K. (2018). Laspeyres Price Index. Retrieved from:

https://mba-lectures.com/statistics/descriptive-statistics/543/laspeyres-price-index.html 

Tucker, A. (2017). Canadian National Railway (CN). Retrieved from:

https://www.thecanadianencyclopedia.ca/en/article/canadian-national-railways 

Zaiontiz, C. (2016). Measures of Central Tendency. Retrieved from:

 https://www.real-statistics.com/descriptive-statistics/measures-central-tendency/