Correlation Coefficient Essay

1032 Words 5 Pages
The value of the correlation coefficient is found to be insignificant at 5 per cent level. Secondly, the correlation between ROI and QR is 0.90 which is also found to be insignificant at 5 per cent level. It reveals that there is no correlation between the two variables. It is evident from these two ratios that the lower the company's margin of safety to the short term creditors, the greater is the profitability of the concern. Thirdly, the correlation coefficient between ROI and WCR is -0.133. It implies that there is negative correlation between profitability of the company and the ratio of working capital. At 5 percent level, the value of the correlation coefficient is found to be insignificant as mentioned in Table 2. This is in …show more content…
This value is found to be insignificant at 5 percent level. Sixthly, the correlation coefficient between ROI and ITR shows negative correlation of -0.418. The coefficient is found to be insignificant at 5 per cent level. The correlation coefficient between ROI and DTR also shows a negative correlation of -0.169. This value is found to be insignificant at 5 percent level. Lastly, the coefficient between ROI and CTR depict moderate degree of positive association of 0.479. This is found to be significant at 5 percent level. Multiple correlation and multiple regression techniques have been applied to study the joint influence of the selected ratios relating to working capital management on the profitability of the company. For the purpose of selection of variable in this analysis, the correlation matrix representing the correlation coefficients between the explanatory variables have been structured in Table 3. This table shows that there is a high degree of correlation between WCR and CR ( 0.889), between WTR and QR (0.801) and between CTSR and WTR ( 0.728 ) for this reason WCR.CR. WTR. CTSR and QR have been taken into account while fitting the …show more content…
B St.Error Beta B Std.Error
1 (Constant) 80.074 115.020 .696 .525 QR -.575 21.820 -.028 -.026 .980 CTR .142 .107 .538 1.329 .255 DTR -5.695 16.658 -.360 -.342 .750 ITR -6.868 3.911 -.761 -1.756 .154 CR .392 8.619 .034 .045 .966 Multiple R=.794(a) R2= 0.630 Adj R2= 0.167 S.E of R= 6.96451
Table : 4 AVOVA Results for ROI
Model Sum of Squares Df Mean Square F Sig.
1 330.159 5 66.032 1.361 .3946 194.018 4 48.504 524.177 9

Conclusion : The study on the interrelation between the selected ratios in the arrears of working capital management and profitability of the company revealed both negative and positive association. Out of the nine ratios selected for the study, two ratios, namely QR and CTR registered positive correlation with the selected profitability ratio, ROI. Among these two ratios, the correlation coefficient between QR and ROI and between CTR and ROI were found to be insignificant at 5 per cent level. The remaining seven ratios, namely CR, WCR, CTSR. WTR, DTR and ITR witnessed negative association with profitability

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