Financial Terms Ordinary least squares (OLS)

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# Definition of Ordinary least squares (OLS)

## Ordinary least squares (OLS)

regression analysis a statistical technique that minimizes the sum of the squared deviations between a dependent variable and one or more independent variables and provides the user
with a y-intercept and x-coefficients, as well as feedback such as R2 (explained
variation/total variation) t-statistics, p-values, etc.

# Related Terms:

## Exchange controls

Governmental restrictions on the purchase of foreign currencies by domestic citizens or
on the purchase of the local domestic currency by foreigners.

## Extraordinary Gain or Loss

Gains and losses that are judged to be both unusual and nonrecurring.

## extraordinary gains and losses

No pun intended, but these types of gains
and losses are extraordinarily important to understand. These are nonrecurring,
onetime, unusual, nonoperating gains or losses that are
recorded by a business during the period. The amount of each of these
gains or losses, net of the income tax effect, is reported separately in the
income statement. Net income is reported before and after these gains
and losses. These gains and losses should not be recorded very often, but
in fact many businesses record them every other year or so, causing
much consternation to investors. In addition to evaluating the regular
stream of sales and expenses that produce operating profit, investors
also have to factor into their profit performance analysis the perturbations
of these irregular gains and losses reported by a business.

## Extraordinary item

A transaction that rarely occurs, and which is unusual, such as
expropriation of company property by a foreign government. It is reported as a separate
line item on the income statement.

## Extraordinary positive value

A positive net present value.

## Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

## internal accounting controls

Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. Internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
and authority.

## least squares regression analysis

a statistical technique that investigates the association between dependent and independent variables; it determines the line of "best fit" for a set of observations by minimizing the sum of the squares
of the vertical deviations between actual points and the
regression line; it can be used to determine the fixed and
variable portions of a mixed cost

## Log-linear least-squares method

A statistical technique for fitting a curve to a set of data points. One of the
variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data
points.

## method of least squares

see least squares regression analysis

## Multiple-issuer pools

Under the GNMA-II program, pools formed through the aggregation of individual
issuers' loan packages.

## Ordinary Annuity

An annuity where the payments are made at the end of each
period

## ordinary annuity

a series of equal cash flows being received
or paid at the end of a period

## Wage/Price Controls

An incomes policy in which wages and prices are constrained by law not to rise by more than a specified percentage.

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