XVII

NORMS, TRENDS, AND CORRELATIONS IN NET
EARNING RATIOS

I. INTRODUCTION

THE following analysis of ratios of net earnings to earning
assets is restricted to the member banks in the Boston district
for the years 1924 and 1925. Amounts of net earnings, as used
in Chapter VII, are the differences between gross earnings and
total expense, and are to be distinguished from “net addition to
profits,” the latter expression being net earnings less “net losses’?
—that is, “total losses less recoveries on assets previously charged
off.” The term is used in the same sense in this chapter.
The data for each bank, expressed as percentages of earning
assets, refer to the calendar years, the base amounts used in
computing the ratios each year being the average earning assets
reported by the banks for five calls, two of which are in December—one
 for December 31 of the preceding year and the other
for December 31 of the calendar year in question.

2. NORMS AND TRENDS IN NET EARNINGS RATIOS

The average? ratios of net earnings to earning assets for 408
member banks in 1924 and for 410 member banks in 1925 were,
respectively, 1.82 and 1.92. For the combined years the ratio
was 1.87. But these amounts, while characteristic of the banks
as a whole, do not represent those of different size and location.
This fact is shown in Table 185, from which two tendencies are
apparent. First, the ratios for banks classified by city groups
tended to increase between 1924 and 1925; second, those each
vear tend to decrease as the cities increase in size. Moreover,
the ratios for banks classified by volume groups increased between
1See page 127.
* Obtained by taking an arithmetic mean of the ratios themselves.

2

?