There’s this silly little formula I have to come to grips with. I want to understand what it tells us (exactly) and why it works.
It’s called the C-Index, and basically its used to test the similarity of financial statements from different countries.
It was created (or discovered) by a guy seemingly called Van der Tas (1992) - well, thats what I’m going on.
Now I have NO IDEA how in the hell to use formula presentation on the SDMB, so you’ll have to bear with me whilst I repeat it to you in word. It goes like this:
sigma (ni x (ni - 1))
N x (N - 1)
On preview it doesn’t look so good, but it’ll have to do. For those who don’t know Sigma is basically “the sum of” (ask the Greeks). The long line is a division line. “n” represents any number (of companies). The small i represents n to any number.
OK this formula is supposed to determine the similarity of financial statements.
Now basically I know what its talking about. You assign numbers to the accounting treatment of different items on the financial statements. Then you use this formula to compare them.
But why does it work? What exactly does it tell us? And for some reason I have a bunch of notes my professor has given me that seems to always make both the bottom line [i.e. N x (N - 1)] and top line be divided by 2 (even though its not on the equation he gave us). Why is this?
A simplified explanation he seems to give of the above formula is:
Number of possible pairs with the same accounting treatment
Total number of possible pairs
Any information that would point to an explanation of this formula or theory would help me a great deal… and any experts out there, please… now is your time to shine…
I need help with this.
Thanks,
–Xavier.
PS: Can’t really ask the professor for much stuff. He’s one of those “DIY” and go F urself kinda guys. So please try your best.