In this Article we will learn a very useful financial term know as T-Value.
T-Value is a statistical calculation using the mean, standard deviation and degrees of freedom and it will help in financial projections and forecasting.
With this information, a business owner can calculate the statistical low and high for earnings in a specific month and with a degree of confidence that the future earnings will fall within that range, which helps with better business planning. Projections can suggest that the business can expect to gross $150,000 in May and the T-Value might tell them that number has a 90-percent rate of confidence. If the confidence rate is less than 50-percent, the business can plan for the potential of a lower return and work to increase the T-Value for future months and years.
Let us learn you how to calculate the T value using a simple formula in Excel:
The Formula =T.DIST(x,deg_freedom,tails)
The T.DIST function uses the following arguments:
- X (required argument) – This is the numeric value at which we wish to evaluate the T Distribution.
- Deg_freedom (required argument) – An integer that indicates the number of degrees of freedom.
- Tails (required argument) – This specifies the number of distribution tails that would be returned. If tails =1, T.DIST returns the one-tailed distribution. If tails = 2, T.DIST returns the two-tailed distribution.
Lets create the data for the calculation:
T dist function
- x: 2
- degrees of freedom: 10
- Tails: 1
The formula is applied as below: