PREFACE
In the preface of Bulletin No. 9, the first of the series of studies
in Public Utility ratios, the following statement was made: “The usefulness
 of financial ratios depends somewhat upon the opportunity
which individual companies have of comparing their own recent ratios
with other similar ratios as standards. There are two ways in which
a serviceable ‘standard’ for comparison may be obtained. The individual
 enterprise may calculate ratios for its business over a sufficiently
long period of time to develop in the minds of its executives an approximate
 ‘standard’ for their own enterprise. On the other hand,
the attempt may be made to present a reasonable standard figure for
the industry as a whole, so that individuals may compare their own
ratios with a so-called ‘standard-of-the-industry’ ratio.”
The Bureau is attempting in these studies to derive reasonable
“standard-of-the-industry” ratios by tabulating data in sufficient quantities
 to permit the determination of modes; i.e. averages about which
the ratios tend to concentrate. These averages may then be used as
the best available standard ratios.
To obtain the mode exactly on the basis of given data arranged in
a frequency distribution, it is necessary to obtain the frequency curve.
The highest ordinate of this curve yields the theoretical mode. It was
felt, however, that for the purposes of this study, the approximated
modes would yield a sufficiently accurate figure to indicate characteristic
 financial ratios. Determination of the respective modes by both
methods disclosed the fact that ordinarily the approximation yielded
results which are quite close to the more accurately calculated figures.
The formula used is

Pe + fe

where / equals lower limit of the modal group
¢ equals class interval
fc equals the frequency of the next higher class interval
fc equals the frequency of the next lower class interval
Some small degree of error is introduced by the use of such an
approximation, and a slight adjustment of the modes is required in
order that the ratios for the various groups will add up to 1.00. The
modal ratios presented cannot be considered as ideal. They are rather

—— eee

. *Appendix A, Bulletin No. 18, Bureau of Business Research, University of
linois.