NET INCOME 
IL THE 75547 assets RATIO 
In an earlier bulletin® consideration was given to those ratios which 
measure the capacity of a company to produce Gross Revenue, that is, 
the ratio of Gross Revenue to Total Assets and the ratio of Gross 
Revenue to Net Worth. The first of these two ratios is particularly 
important because it indicates the period necessary for capital turnover. 
In the present bulletin, attention is directed to those ratios which 
measure the ability of a company to produce Net Income (or Net 
Revenue). These are the ratios of Net Income to Total Assets and the 
ratio of Net Income to Net Worth.? 
In general the procedure will be to analyze the two principal ratios 
separately, supporting the analyses by suitable tables in an appendix 
and by bar-charts accompanying the text. The tables are constructed 
to show “frequency distributions,” in other words, to picture the way 
the hundreds of ratios calculated from the financial statements of many 
companies have been grouped into class intervals according to the size 
of the ratios. One vertical bar in the charts might, for example, repre- 
sent the ratios whose values range from, say, .02 to .029. In order to 
make all of the charts more comparable, however, they are put on a 
relative basis by making the length of the bars express the percentage 
of the total cases which fall in the respective ratio-groups rather than 
the number of cases. 
The Net Earning Power of Property Investment 
In preparing the ratios here studied the balance sheets of some two 
hundred public utility companies were examined for the period 1915- 
1924. These financial statements yielded 1603 cases for study. For 87 
of these, no statement of net income was obtainable. In addition there 
were eight cases between .11 and ,16 in which the ratio of Net Income 
to Total Assets was unusually high, and two cases in which the ratio of 
Net Income? to Total Assets was unusually low,—.11 or less. These 97 
“University of Illinois, Bureau of Business Research Bulletin No. 10—The Finan- 
cial Productivity Ratios of Public Utility Companies. 
*Data for the ratio of Net Larnings to Total Assets and the ratio of Net Earnings 
to Gross Revenue are presented in additional tables in the Appendix, although these 
ratios are not discussed in detail in the text. 
Net Income, as used herein, is the amount of revenue remaining after operating 
expenses and fixed charges have been covered. Net Loss would be the amount by which 
the revenue was insufficient to cover both classes of costs, and is represented by a nega- 
tive ratio of Net Income to Total Assets.