Concurrent Deviation Method

^AIM:

            To test relationship between current ratio and return on total assets of X Ltd for the period 2006-11.

NULL HYPOTHESIS (H₀):

            There is no significant relationship between current ratio and return on total assets of X ltd for the period 2006-11.

ALTERNATIVE HYPOTHESIS (H₁):

            There is no significant relationship between current ratio and return on total assets of X  ltd for the period 2006-11.

YEARS	CURRENT RATIO (X)	DX	RETURN ON TOTAL ASSETS( Y)	DY	DXDY
2005-06	5.01		7.02
2006-07	3.27	-	5.02	-	+
2007-08	3.21	-	7.80	+	-
2008-09	2.65	-	4.88	-	+
2009-10	2.56	-	7.17	+	-
2010-11	3.04	+	9.6	+	+
Total					C=3

 

 

 

 

 

 

TABLE NO: 4.2.2 Calculation of correlation co-efficient between current ratio and return on total assets of X Ltd for the Period 2005-11

Concurrent deviation method :

Rc  = ±√±(2C-n)/n

Rc  =  ±√±(2(3)-5)/5

Rc  =  ±√±.2

Rc  =  +0.45

Student's t-distribution:

t   =         r        X      √(n - 2)

         √(1-(r² ))

t = 0.45/√ (1-(0.45)² * √ 6-2

t= 1.008

Degree of freedom(dof)        =     n-2

                                             =      6-2

                                             =       4

Level of significance              =      5%

Table value(t₄ 0.05)              =      2.571

Result:

Since the calculated value of t(1.008) is less than the table value of t(2.571) m, the Null hypothesis is accepted .

Decision:

There is no significant difference between current ratio and return on total assets of X ltd for the period 2006-10.

Posted Date: 2/25/2013 7:50:40 AM | Location : United States

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