Analyze and Compare the Financial Statements of Companies
A company’s choice of inventory valuation method can have a significant impact on the presentation of its financial statements. Financial items such as cost of sales, gross profit, net income, inventories, current assets, and total assets as well as the…
Sampling Considerations and 5 Common Biases in Sampling
Sampling considerations refer to the desirable characteristics that should always be taken into account when selecting a sample so as to increase chances of accurate estimation of population parameters. In general, larger samples are preferred to smaller ones because the…
Hypothesis Testing
A hypothesis is an assumptive statement about a problem, idea, or some other characteristic of a population. It can also be considered an opinion or claim about a given issue. Therefore, a statistical test has to be performed to establish…
One-tailed vs. Two-tailed Hypothesis Testing
A one-tailed test (one-sided test) is a statistical test that considers a change in only one direction. In such a test, the alternative hypothesis either has a < (less than sign) or > (greater than sign), i.e., we consider either…
Understanding Test Statistics
A test statistic is a standardized value computed from sample information when testing hypotheses. It compares the given data with what an analyst would expect under the null hypothesis. As such, it is a major determinant when deciding whether to…
Understanding the Decision Rule
The decision rule refers to the procedure followed by analysts and researchers when deciding whether to reject or not to reject a null hypothesis. We use the phrase “not to reject” because it is considered statistically incorrect to “accept” a…
Statistical Result vs. Economically Meaningful Result
Statistical significance refers to the use of a sample to carry out a statistical test meant to reveal any significant deviation from the stated null hypothesis. We then decide whether to reject or not to reject the null hypothesis. Economic…
The p-value in Hypothesis Testing
The p-value is the lowest level of significance at which we can reject a null hypothesis. It is the probability of coming up with a test statistic that would justify our rejection of a null hypothesis, assuming that the null…
Uses of the t-test and the z-test
The z-test The z-test is the ideal hypothesis test to conduct in a normal distribution of a random variable. In addition, the variance of the population must be known. The z-statistic refers to the test statistic computed for hypothesis testing.
