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.