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Quarterly Revenue Trend Forecasting

EasyStatistics & Probability00:00
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Problem

Business Context

FinEdge, a B2B payments company, needs a simple near-term forecast for next quarter's revenue to support budgeting. The finance team wants a statistically grounded baseline using recent quarterly results rather than a purely judgment-based estimate.

Problem Statement

Use a linear trend model to forecast next quarter's revenue and quantify uncertainty around the forecast. Assume quarterly revenue follows an approximately linear trend over the last 8 quarters.

Given Data

Quarter Index tttRevenue ($M)
148.2
250.1
351.4
453.0
554.6
656.1
757.9
859.3

You should forecast revenue for quarter t=9t = 9t=9. Use a 95% confidence level.

Requirements

  1. Fit a simple linear regression of revenue on quarter index.
  2. Estimate the slope and intercept.
  3. Compute the point forecast for quarter 9.
  4. Calculate the residual standard error.
  5. Construct a 95% prediction interval for quarter 9 revenue.
  6. Briefly explain whether this forecast is appropriate for financial planning.

Assumptions

  • The relationship between time and revenue is approximately linear over these 8 quarters.
  • Residuals are independent with constant variance.
  • No major structural break, pricing change, or acquisition occurred during the period.
  • A prediction interval, not just a mean estimate, is needed because finance cares about planning risk.