The CHISQ.INV Function is categorized under Excel Statistical functions. It will calculate the inverse of the left-tailed probability of the chi-square distribution.
In financial analysis, this function can be useful in finding out the variations in assumptions made. For example, consider a precision machine that produces balls for a high-quality ball bearing with a diameter of precisely 2000 μm (2 mm). Assuming that the machines typically produce balls of that size on average, but individual balls can vary slightly in either direction following a normal distribution.
Depending on production conditions, such as the raw material supplied, humidity factor, etc., production will vary so that some machines produce balls distributed around the target of 3000 μm, while others produce balls with a wider distribution. Therefore, the variance parameter of the normal distribution of the ball sizes varies from machine to machine. Using CHISQ, we can model the variance of a particular machine.
The CHISQ.INV function uses the following arguments:
Probability (required argument) – This is the probability associated with the chi-squared distribution.
Deg_freedom (required argument) – This is the number of degrees of freedom. It must be an integer between 1 and 1010.
Thanks for reading CFI’s guide to important Excel functions! By taking the time to learn and master these functions, you’ll significantly speed up your financial analysis. To learn more, check out these additional CFI resources:
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