“The Rule of 40”, a principle according to which software company’s combined “Revenue growth rate” and “Operating margin” should exceed 40%, has gained momentum as a high-level gauge of performance for software businesses. Increasingly, executives are embracing “the Rule of 40” as an important metric for building company’s valuation. To investigate the relationship between the company’s fulfilment of the “Rule of 40” and the company’s market capitalization, quarterly data was gathered for a software company (Ansys) in Worksheet 1. Worksheet 1 Quarter ended date Rule of 40 (Revenue + Op Income, $M) Market Capitalization, $M Mar-03 $125 $424 Jun-03 $132 $514 Sep-03 $143 $597 Dec-03 $153 $596 Mar-04 $163 $581 Jun-04 $170 $666 Sep-04 $175 $957 Dec-04 $184 $1 073 Mar-05 $194 $1 091 Jun-05 $203 $1 196 Sep-05 $213 $1 341 Dec-05 $221 $1 567 Mar-06 $235 $2 177 Jun-06 $277 $1 915 Sep-06 $329 $1 956 Dec-06 $391 $1 976 Mar-07 $453 $2 120 Jun-07 $491 $2 434 Sep-07 $520 $3 141 Dec-07 $555 $3 010 Mar-08 $588 $3 361 Jun-08 $621 $4 309 Sep-08 $673 $2 589 Dec-08 $727 $1 804 Mar-09 $743 $2 336 Jun-09 $761 $3 214 Sep-09 $767 $3 654 Dec-09 $782 $3 919 Mar-10 $807 $4 020 Jun-10 $831 $3 996 Sep-10 $846 $4 163 Dec-10 $867 $5 124 Mar-11 $902 $4 925 Jun-11 $941 $4 708 Sep-11 $1 000 $5 355 Dec-11 $1 053 $5 853 Mar-12 $1 098 $5 795 Jun-12 $1 146 $6 146 Sep-12 $1 180 $6 252 Dec-12 $1 212 $7 045 Mar-13 $1 226 $6 891 Jun-13 $1 253 $8 220 Sep-13 $1 271 $7 800 Dec-13 $1 289 $7 699 Mar-14 $1 312 $6 717 Jun-14 $1 336 $7 174 Sep-14 $1 371 $7 082 Dec-14 $1 393 $7 705 Mar-15 $1 396 $7 570 Jun-15 $1 398 $8 475 Sep-15 $1 397 $8 311 Dec-15 $1 393 $7 429 Mar-16 $1 402 $7 374 Jun-16 $1 417 $8 094 Sep-16 $1 432 $7 224 Dec-16 $1 453 $8 892 Mar-17 $1 493 $10 216 Jun-17 $1 524 $10 459 Sep-17 $1 567 $12 617 Dec-17 $1 607 $13 498 Mar-18 $1 647 $13 528 Jun-18 $1 710 $14 565 Sep-18 $1 720 $14 178 Dec-18 $1 921 $14 849 Mar-19 $1 968 $16 062 Jun-19 $2 052 $16 681 Sep-19 $2 125 $19 275 Test for a significant relationship at the 0.05 level of significance. Do you believe the estimated regression equation would provide a good prediction of the Market Capitalization? Use to support your answer. Provide an interpretation of the intercept (b0), and the slope (b1), in this problem.
“The Rule of 40”, a principle according to which software company’s combined “Revenue growth rate” and “Operating margin” should exceed 40%, has gained momentum as a high-level gauge of performance for software businesses. Increasingly, executives are embracing “the Rule of 40” as an important metric for building company’s valuation. To investigate the relationship between the company’s fulfilment of the “Rule of 40” and the company’s market capitalization, quarterly data was gathered for a software company (Ansys) in Worksheet 1.
Worksheet 1
Quarter ended date | Rule of 40 (Revenue + Op Income, $M) | Market Capitalization, $M |
Mar-03 | $125 | $424 |
Jun-03 | $132 | $514 |
Sep-03 | $143 | $597 |
Dec-03 | $153 | $596 |
Mar-04 | $163 | $581 |
Jun-04 | $170 | $666 |
Sep-04 | $175 | $957 |
Dec-04 | $184 | $1 073 |
Mar-05 | $194 | $1 091 |
Jun-05 | $203 | $1 196 |
Sep-05 | $213 | $1 341 |
Dec-05 | $221 | $1 567 |
Mar-06 | $235 | $2 177 |
Jun-06 | $277 | $1 915 |
Sep-06 | $329 | $1 956 |
Dec-06 | $391 | $1 976 |
Mar-07 | $453 | $2 120 |
Jun-07 | $491 | $2 434 |
Sep-07 | $520 | $3 141 |
Dec-07 | $555 | $3 010 |
Mar-08 | $588 | $3 361 |
Jun-08 | $621 | $4 309 |
Sep-08 | $673 | $2 589 |
Dec-08 | $727 | $1 804 |
Mar-09 | $743 | $2 336 |
Jun-09 | $761 | $3 214 |
Sep-09 | $767 | $3 654 |
Dec-09 | $782 | $3 919 |
Mar-10 | $807 | $4 020 |
Jun-10 | $831 | $3 996 |
Sep-10 | $846 | $4 163 |
Dec-10 | $867 | $5 124 |
Mar-11 | $902 | $4 925 |
Jun-11 | $941 | $4 708 |
Sep-11 | $1 000 | $5 355 |
Dec-11 | $1 053 | $5 853 |
Mar-12 | $1 098 | $5 795 |
Jun-12 | $1 146 | $6 146 |
Sep-12 | $1 180 | $6 252 |
Dec-12 | $1 212 | $7 045 |
Mar-13 | $1 226 | $6 891 |
Jun-13 | $1 253 | $8 220 |
Sep-13 | $1 271 | $7 800 |
Dec-13 | $1 289 | $7 699 |
Mar-14 | $1 312 | $6 717 |
Jun-14 | $1 336 | $7 174 |
Sep-14 | $1 371 | $7 082 |
Dec-14 | $1 393 | $7 705 |
Mar-15 | $1 396 | $7 570 |
Jun-15 | $1 398 | $8 475 |
Sep-15 | $1 397 | $8 311 |
Dec-15 | $1 393 | $7 429 |
Mar-16 | $1 402 | $7 374 |
Jun-16 | $1 417 | $8 094 |
Sep-16 | $1 432 | $7 224 |
Dec-16 | $1 453 | $8 892 |
Mar-17 | $1 493 | $10 216 |
Jun-17 | $1 524 | $10 459 |
Sep-17 | $1 567 | $12 617 |
Dec-17 | $1 607 | $13 498 |
Mar-18 | $1 647 | $13 528 |
Jun-18 | $1 710 | $14 565 |
Sep-18 | $1 720 | $14 178 |
Dec-18 | $1 921 | $14 849 |
Mar-19 | $1 968 | $16 062 |
Jun-19 | $2 052 | $16 681 |
Sep-19 | $2 125 | $19 275 |
Test for a significant relationship at the 0.05 level of significance.
Do you believe the estimated regression equation would provide a good prediction of the Market Capitalization? Use to support your answer.
Provide an interpretation of the intercept (b0), and the slope (b1), in this problem.
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