UNIVERSITY OF ILLINOIS BULLETIN Issuer WEEKLY XXIV SepreEmBER 14, 1926 No. 2 [Entered as seeond-class matter, December 11, 1912, at the post office at Urbana, Illinois, under the Act of August 24, 1912. Acceptance for mailing at the special rate of postage provided for in section 1103, Act of October 3, 1917, and authorized July 31, 1918.] BUREAU OF BUSINESS RESEARCH COLLEGE OF COMMERCE AND BUSINESS ADMINISTRATION BULLETIN NO. 10 THE PRODUCTIVITY RATIOS OF PUBLIC UTILITY COMPANIES PUBLISHED BY THE UNIVERSITY OF ILLINOIS, URBANA 1926 It is the purpose of the Bureau of Business Research of the University of Illinois— (1) to study and as far as possible to explain economic and industrial conditions with- in the State; (2) to direct attention to experience-tested practices of good business management; and, (3) to investigate methods for securing the best executivz control of business. BUREAU OF BUSINESS RESEARCH Cuas. M. Tuomeson, Ph.D., LL.D., Director A. C. Lrrreeron, AM., C.P.A,, Assistant Director BULLETIN NO. 10 THE FINANCIAL PRODUCTIVITY "OF PUBLIC UTILITY COMPANIES PUBLISHED BY THE UNIVERSITY OF ILLINOIS, URBANA 1926 T + onl 2) ‘ i . Lo. PREFACE In the preface to Bulletin No. 9, the first of this series of studies in Public Utility ratios, the following statement was made: The useful- ness 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 quanti- ties to permit the determination of modal averages, i. e., averages about which the ratios tend to concentrate. These averages may then be used as the best available standard ratios. The modal averages were calculated by an approximation formula. The formula used is: I Icx.c + f'c + fc where 1 equals lower limit of the modal group c equals class interval fc equals the frequency of the next higher class interval f'c equals the frequency of the next lower class interval. To obtain the mode exactly on the basis of given data, arranged as 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 mode yields a sufficiently accurate figure to indicate characteristic financial ratios. Determinations of the respective modes by both methods dis- closed the fact that the approximations yielded results which are quite close to the more accurately calculated figures. In the present study two ratios are considered, (1) the ratio of Gross Revenue to Total Assets, which expresses the productiveness of the service-producing investment and, (2) the ratio of Gross Revenue 135% to Net Worth, which expresses the number of cents of revenue earned per dollar of ownership capital and thus gives a picture of the result of the type of financing. A third ratio is presented in the tables (ratio of gross revenue to fixed assets) but is not discussed in the text since it 1s so nearly identical with the ratio of revenue to total assets. The data for each of these two ratios are broken down into sub- classes for more detailed analysis. In this way an effort is made to reflect in the tables something of the effect upon the ratio of, (1) geo- graphical location of the companies, (2) size of company, (3) different years in the business cycle, and (4) type of operating activity. Great care has been exercised throughout in standardizing the figures from the balance sheets used so that the resulting ratios would be as nearly comparable as possible. This has necessitated in some cases the elimination of outside investments from the Assets and from Net Worth. Wherever ratios for an individual company are to be compared with the averages herein presented, care should be taken to make the former comparable by likewise excluding outside investments. Acknowledgement is gratefully made of the helpful criticism and planning of A. C. Littleton, C.P.A., and of the active assistance of R. D. Haines, C.P.A. Acknowledgment should be made also to other members of the Bureau staff for their faithfulness and patience throughout the tedious process of analyzing these data and of making the many com- putations which were necessary. ra cdl REVENUE 1 THE TOTAL ASSETS RATIO The term “productivity” is used in the above title to indicate capacity to produce revenue by the sale of service. For the present purposes security investments and income from securities have been eliminated from the financial statements in the process of standardizing the classification so that the figures used show operating results only. Two ratios are selected as particularly fitted to picture this revenue producing capacity. The first one is the ratio of Gross Revenue to Total Assets and expresses the number of cents of annual gross revenue per dollar of total assets invested at the end of the year. It shows the financial productiveness of the service producing (i. e., op- erating assets) investment. The ratio may be stated in cents per dollar as, $.164 per $1, or may be cast into the form of a percentage by moving the decimal point as, 16.4 (i. e., 16% cents per dollar). The latter form 1s the one generally used throughout the bulletin. A relatively large ratio, such as .18 or .20 for example would indicate that a highly efficient use of the assets was producing a large return for each dollar invested. Conversely a low ratio like .02 or .06 would indicate over-investment in plan or inefficient operating conditions. The second of the two ratios to be analyzed is the ratio of Gross Revenue to Net Worth which will be examined in Part II of this bulle- tin. Tables for a third ratio, Gross Revenue to Fixed Assets are included in the Appendix for reference, but are not discussed in the text because these ratios are so nearly like the ratios of revenue to total assets. In general, the procedure will be to analyze the two ratios sepa- rately, supporting the analysis by suitable tables in an appendix and by bar-charts accompanying the text. The tables are constructed to show “frequency distributions,” that is to say, to show the way the hundreds of ratios fall into groups. In the charts each vertical bar represents a ratio-group, as for example, the ratios which fall between .12 and .16; the length of the bars gives a relative measure of the number of cases which fall in each group. In order to secure greater ease in making quantitative comparisons, the number of cases in each ratio- University of Illinois, Bureau of Business Research Bulletin No. 9—The Current Ratio in Public Utility Companies contains further notes in regard to the standardiza- tion of financial statements preliminary to statistical analysis. {5.9 group is reduced to a percentage-of-total basis. This percentage is to be read in the charts from the figures on the left edge. THE PRODUCTIVENESS OF TOTAL INVESTMENT In preparing the ratios here studied the balance sheets of some two hundred public utility companies were examined for the period 1915-1924. All of these financial statements, regardless of size of com- pany, location, year or any other factor, yielded 1603 cases for study. Of these 81 cases could not be reduced to ratios because the amount of gross revenue was not given in the published statements. There were 43 cases in which the ratios were so high and so scattered above a ratio of .50 that they are not included in the frequency distribution proper. Merely to complete the record the following analysis is given of the 43 cases of unusually high ratios: 29 cases showed ratios between 50 and .69, 9 cases between .70 and .89, and 5 cases of .90 or over. Practically all of the cases were in either the East or the Middle West Boreas or Bases RESEARCH Unepsiry or liiwors-1& i | AVERAGE Moor) J AL 0 v i 4 3 Ba i & ) i E ~ vl — 3 $5300 EE PLGD SI YR YRN GIL ratios Lxpressed as Percentages Cuart la—FreqQuency DistriButioN oF 1479 Ratios or Gross Revenue To ToraL Assets From 200 Pusric Urinity Companies, 1915-1924 [61] districts, and over half of them were in the size group 10-49 millions of assets. The remaining 1479 cases were sorted into ratio-groups with four per cent intervals, as, 04-07.9, 08-11.9, 12-15.9, etc. This sort of analysis permits the determination of the point of concentration, i. e., the group with the most cases, as well as the distribution or “spread” of the other cases about this highest frequency group. These data are graphically illustrated in Chart la; the details are presented in Tables Ia in the Appendix. The first thing in the chart which strikes the eye is its general outline. It rises rather abruptly in the second ratio-group, continues + at a fairly uniform high level through five groups and then drops off rapidly, but regularly to very short bars at the extreme right. Obviously a very large proportion of the total number of cases lies within relatively narrow limits. There are five groups which stand out above all the rest between ratios of .04 and .24. Some few cases showed less than four cents of revenue per dollar of assets and a few more showed more than twenty-four cents per dollar, but the greatest bulk of the cases (78.3 per cent) fell between these limits. Reducing the spread to the three largest groups, (the longest single bar in the chart and the next one on each side) shows 50.5 per cent of the cases concen- trated between .08 and .20. This indicates that slightly over half of the cases lie within the narrow range of 12 per cent. The group of highest frequency is 12-15. Here is found almost 20 per cent (19.5) of the total. The average used in this study (calculated mode) always falls in the most popular group and in this instance is 14. As far as it is possible for a single figure to be typical of many ratios in a large group this ratio of $.14 of revenue per $1 of assets may be said to be typical, or average, for these 1479 cases. THE GEOGRAPHICAL DISTRIBUTION The distributions of the ratios are compared for several geographical districts? in Table Ib. The characteristic distribution of the cases in each district is easily seen in Chart 1b. The total number of cases (1479) falls into districts as follows: East Middle West West South Number of cases.... 701 399 231 148 *See University of Illinois, Bureau of Business Research, Bulletin No. 9 for list of states included in each district. E72] Bukeav or Business Pesearch Univewsirr or likivors=-16 AVERAGE AVERAGE Averace Gong) Wooe] (Move) it r Silo plete eB oe Loi EAST MIDDLE WEST WEST SOUTH Ratios Lxpressed as Percentages Cuarr 1b—FreqQuENcy DistriBUTIONS OF THE REVENUE-TO-ASSETS Ratios oF PusLic UriLity CompANIES BY GEOGRAPHICAL Districts Reference to the chart will show the differences in the outlines of the several distributions. In the East there is no such degree of concen- tration in one or two groups as in the other districts. As many as 29 per cent of the cases in the South,® for example, falls in one ratio-group (12-15 inclusive); in the East the largest bar measures a ratio-group containing only 17.8 per cent of the cases. In the West two groups register 26.7 per cent each. Generally speaking the Eastern district shows a little more spread of the cases among the ratio-groups, while in the other districts the tendency is for the ratios to concentrate more. This is again noticed in the spread about the largest group. By grouping about 50 per cent of the cases in each district, it will be pos- sible to compare the varying range of ratios necessary to embrace one- half of the cases. TEASE. + iv wiv ions onl o Sire alee wah iote:« 52.7 per cent between ratios of .12 and .24 Md dle West, eis ates 58.1 per cent between ratios of .08 and .20 West. ov vvssnnneesadnnsniindee 53.7 per cent between ratios of .04 and .12 South ae i hs oe 47.3 per cent between ratios of :12.and 1.20 The East and the Middle West each shows approximately 50 per cent of their cases spread over a range of 12 per cent, although both the For the South all of the results are less dependable than for the other districts, due to the limited number of cases. L81] lower and upper limits for the Middle West are lower by one ratio- group of 4 per cent than the corresponding limit in the East. The data for the West and South on the other hand, show for both districts that a range of only 8 per cent is necessary to include approximately 50 per cent of their cases. So it may be said that a slightly greater degree of concentration of ratios exists in the West and South than in the East and Middle West. It will be observed that the upper limit (.12) of this 50 per cent group for the West is the same as the lower limit of the 50 per cent group for the East while the lower limit extends down to .04. The con- centrated 50 per cent of the cases in the West is therefore considerably lower in the scale than in the East; the Middle West is a little lower than the East and South, but above the West. There is thus some tendency for the Middle West and West to reach further into the lower ratios than the East or South. The ratio-group with the highest number of cases in each district is as follows: East Middle West West South { 04-07 Model group......... 16-19 12-15 108-11 12-15 Percentage included therein. ........» 11.8% 24.8% 26.9% 29.1% The high degree of concentration in three of the four districts is further evidenced by the above figures. Approximately one-fourth of the cases in three instances fall in one ratio-group of 4 per cent spread, but the fact will have been already observed from the chart that each of two ratio-groups in the West includes approximately one-fourth of the total. The modal average for each district is given below. It indicates the point where the greatest number of cases occur and expresses the typical case for the respective localities. East Middle West West South Modal Average...... .i8 14 .09 .14 According to these averages three of the districts are not far apart in number of cents of revenue per dollar of assets. But the difference is so great between the Western district and the others that it might lead one to wonder if plant expansion has not out-distanced demand for service. In this series of bulletins, however, the presentation of the facts claims all of the available space and “reasons why” must be left for other investigators. THE RATIOS BY SIZE OF COMPANY The size of the company as measured by total assets according to ‘Table Ic and Chart 1c does not materially affect the distribution of the [91] ratios of revenue to assets. The tendency is for most companies to show a return of less than 20 cents on the dollar regardless of size. Below a ratio of .20 there are, for the smaller companies (i.e. 5-9 millions of assets), 71.8 per cent of the cases, for the middle group of companies (10-49 millions of assets) 67 per cent, and for the companies with 50 millions of assets or over 66.4 per cent. Bukeau or Business Research Universirr of licinors-1c tf AVERAGE veRAGE : (Mon~! Woor, Jo Ke 5 D 1 I I = os RE = Ll I INT S TIERED 32% ne 3 320 Tangs Ee Xs $82 New S70 9 MIULIONS OF ASSETS 10 70 49 MILLIONS OF ASSETS SO MULION'S OR OVER OF ASSETS Ratias Lxpressed as Percentages Cuart lc—FRrEQUENCY DISTRIBUTIONS OF THE REVENUE-TO-ASSETS Ratios or PusLic UriLiry Companies By Size oF COMPANY The modal averages are almost identical for the smaller companies and those in the middle range of size. For the larger companies the modal average is higher (.178 as compared to .142). The concentrated 50 per cent is suggested in the following: 5 2000 lan, rr te eh es 53.5 per cent between .08 and .20 10:50 4 millon, ois ss a is vee he ed hi 51.0 per cent between .12 and .24 50 TION OI OVET. cts rons ote tinis doutale as 48.8 per cent between .08 and .20 THE RATIO BY YEARS The impression prevails that the public utility business is less sub- ject to the cyclical fluctuations of general business than is industrial enterprise. So we observe with interest the graphic illustration in Chart 1d of the condition of the revenue-to-assets ratio in typical years. The years selected (1917, 1919, 1921, 1924) are chosen to include the principle phases of the general business cycle as indicated in the head- ings of Table Id. oo 109 The distributions indicate that cyclical fluctuations do not materi- ally influence the relationship of revenue to total assets. The modal averages for the four respective years show but little variation; being 14, .15, .14 and .14. Such a showing indicates that more companies earned between $.12 and $.16 of revenue per $1 of assets than at any Buscas or Busivess Prscancu Universirr of humors 1d = AVERAGE <A5F - 4 XR 5 - v = Ir 1579 /v&/ Ratios Lxpressed as Percentages CuArT 1d—FRrEQUENCY DISTRIBUTIONS OF THE REVENUE-TO-ASSETS Ratios oF Public UtiLiTies By SAMPLE YEARS other rate, and that this fact was very little changed by a period of general business depression such as 1921, This is the typical condition, expressing the representative ratio of the year. Note the change in the proportion of cases which falls each year in the group which contains the modal average. 1917 1919 1921 1924 Percentage of cases in the modal group... 24% 22% 18% 21% Evidently in the depression year of 1921 there were fewer cases in the largest group than was the case in any of the other years. This can also be seen in the chart from the fact that the longest bar for 1921 is shorter than the longest bar for any of the other years. The way the cases are distributed throughout the other ratio-groups is similar to the showing just mentioned. Taking three ratio-groups beginning with .08, we find the following situation: r+<11 t Yai, Percentage of cases in the three ratio 1917 1919 1921 1924 groups between .08 and 20........ 58% 52% 47% 44% There apparently is less concentration in a small number of groups as time goes on. To include one more group lower down the scale (i. e., .04- .08) would not change the showing materially. Since in some years the ratio-groups immediately above 16-20 contain a considerable number of cases, the “bulk” grouping may be experimentally expanded to in- clude the six ratio-groups between .04 and .28 as follows: Percentage of cases in the six ratio- 1917 1919 1921 1924 groups between .04 and .28........ 90% 85% 87% 88% Thus it appears that a very large proportion of the cases (85-90 per cent) regardless of the year falls within an area of 24 cents, i.e., .04 to .28. When the grouping is extended from .08 to .20, as above, there is a tendency apparent, as the years go on, for the cases to show more ratios on the outside of these limits, that is, below .08 and above .20. But a six-class grouping is large enough so that the effect of the different con- ditions in different years is no longer apparent. One other tabulation may be of interest in further characterizing the ratio distributions by years. This will show the proportion of the cases in the respective years which lies above a certain ratio as follows: Percentage of cases with: 1917 1919 1921 1924 (1) iratio. of 1.32. or above. fit. ith 2 9% 8% 9% 7% (2) ratiofel 24 orliabove 11% 18% 24% 16% (3) ratio of 20 or above......- IO, 28% 37% 34% The outstanding point in this presentation is the fact that throughout the tabulation a larger proportion of the cases tend toward the higher ratios in the year of depression, 1921, than in any of the other years shown. With a ratio of .32 as a dividing line, 1921 shows 9 per cent of the cases above that point in contrast with 5 to 8 per cent for the other years; with a ratio of .24 as the dividing line, 1921 shows nearly one- fourth of the cases above that point and the other years considerably less. THE RATIO ACCORDING TO TYPE OF COMPANY The ratios are here classified (Table Ie and Chart le) as to Gas and Electric companies, Traction companies, and Holding companies. The outlines of the bar charts show a marked similarity between the distribution of cases in ratio-groups for gas and electric companies on the one hand, and traction companies, on the other, and a marked difference between the distribution of the holding company cases and the other types. i121 Ax - Avepars AVERAGE AVERAG ’ (pn fre) i Yar 37 10 ¥ ] ! I oy id re aries g i EEE EEE $8 5% Ns ® GAS AND La. TRIC TRACTION HoLowe ComPINIES __ Ratios Lxpressed as Percentages Cuart le—FreqQueEncy DistriBuTiONs OF THE REVENUE-TO-ASSETS Ratios oF Pusric UriLity Companies By Tyre oF ComPANY These similarities so readily perceived in the chart are also evi- denced in the figures in the table. In gas and electric and traction companies the largest group is 12-15. The modal averages of these two distributions are nearly identical although there is some differ- ence in the proportion of cases in the two modal groups; for gas and electric companies 18.6 per cent of the cases fall in the modal group and 22.7 per cent for traction companies. In contrast with this showing the holding company distribution plainly shows the largest group between .04 and .07. This is materially lower than the showing of the other com- panies and consequently the modal average (5.8 cents per dollar) is likewise lower. The distinct tendency of holding companies toward the lower ratios of revenue to total assets 1s shown again in the proportion of cases which falls below a certain ratio as follows: Gas and Percentage of cases: Electric Traction Holding (1) below a ratio of .16.. 47% 50% 81% (2) below a ratio of 24.. 79% 84% 94% A very considerable portion of the ratios for each type of company is concentrated within a comparatively narrow range. Between a ratio of .08 and one of .24 there is a range of only .16. Within that area there are 65 per cent of the gas and electric cases, 72 per cent of the traction Fh 13. cases, and 43 per cent of the holding company cases. The limits thus established do not characterize the holding company distribution very well because some of its most important ratio-groups are excluded. Thus the largest ratio-group in this type of company 1s below .08 while some of the ratio-groups above .24 are relatively unimportant. This method of characterizing a frequency distribution fits the circumstances much better if the limits be set at .04 and .16. The holding company group shows 67 per cent of their cases between these two limits. Thus approx- imately the same proportion of cases, about two-thirds, falls between .04 and .16 for holding companies, and between .08 and .24 for both gas. and electric companies, and traction companies. r 4 1 a I J | REVENUE II. THE NET WORTH RATIO In Part I, the ratio of revenue to total assets was analyzed as a quantitative measure of the productiveness of total operating invest- ment; here it is proposed to study the productiveness controlled by ownership capital through the analysis of the ratio of Gross Revenue to Net Worth. Since Net Worth includes capital stock, preferred as well as common, and undistributed surplus, it represents the stockholders’ inter- est, or equity in the corporation. This ratio then expresses the number of cents of gross revenue controlled per dollar of stockholder capital. In a sense it shows the amount which might presumably be available per stockholder-dollar, if there were no operating expenses and fixed charges to be deducted. A relatively high ratio indicates that the stockholders’ dollar is highly active and will be highly productive if the margin of the profits remains unchanged. A low ratio would be a less favorable showing. THE PRODUCTIVENESS OF OWNERSHIP CAPITAL In analyzing the available public utility balance sheets, 1495 cases were found where it was possible tocalculate the revenue /net worth ratio. In some instances where a deficit existed in place of net worth or where the data for some years were not given, no ratio could be calculated. Seventy-eight of the total available cases produced a ratio of 1.00 or more. These unusual cases will first be briefly characterized and this will be followed by the analysis of the 1417 remaining cases which are rather regularly distributed between zero and a ratio of one. Since a ratio is the quotient obtained by dividing one quantity by another, any unusual change in either the dividend (here the revenue) or the divisor (here the net worth) without a corresponding change in the other quantity will produce a corresponding change in the ratio as a quotient. By coincidence just one-half of the 78 unusual ratios here presented were due to the fact that net worth was below the normal figure shown by our other studies, and one-half to the fact that there had been an unusual increase in gross revenue or that increases in revenue consist- ently ran ahead of increases in net worth. Decreases in net worth pro- duced very unusual ratios in some instances. Two cases were, noted for {153 example, in which revenue in one year amounted to $17 per dollar of net worth: in another case where net worth amounted to only 3 per cent of total assets the revenue ratio was $6 per dollar of net worth. Such extreme cases are of course infrequent, and the conditions produc- ing them are unusual due to temporary special causes. Nearly two-thirds of the ratios which are above 1 are less than 2, and 17 per cent are over 3. With regard to location the unusual cases are distributed geograph- ically in about the same way the normal cases are, with perhaps, some tendency to be concentrated in the East and Middle West. About 86 per cent of the unusual cases are in these two districts in comparison with 74 per cent of the normal revenue/net worth ratios. There is a tendency, however, for the unusual ratios to appear in traction compa- nies; 56 per cent of those cases are found in this type of company as compared with 25 per cent of the cases of typical ratios. It is to be Bureau oF Business RESEARCH UNIVERSITY OF /iLINOIS -24 hn’ i L ss AVERAGE (Moo) 2 29 bik | 2 Ek BR : vo ~ [o) . 1 Cy" TING EG) MLE YT 2.5 2% P33 NPL Ine Ratios Lxpressed as Percentages Cuarr 2a—Frequency Distrisution oF 1417 Ratios oF Gross Revenue To Ner Worta From 200 Pusric UriLity Companies, 1915-1924 rea iG noted, also, that more unusual ratios appear in the years 1920 and 1921 than in any other between 1915 and 1924. Table Ila gives the distribution of the 1417 cases which shows ratios below 1, and Chart 2a presents the table graphically. In out- line the chart shows considerable regularity in the distribution of cases among the ratio-groups, except that the second group is slightly larger. The five largest groups include the ratios between .08 and .48 and embrace nearly three-fourths (73%) of the total number of cases. Any single random case, therefore, would probably fall near some ratio not less than .08 or more than .48. The largest ratio group lies between .24 and .32 and contains 19% of the 1417 cases. The modal average, .29, falls in this group. It is the most typical single figure—nearer to a larger number of cases than any other type of average would be. THE GEOGRAPHICAL DISTRIBUTION The most striking feature of the ratio distributions according to location is the radically different showing of the ratios in the West. Forsro wr Emr Fogirecn Univessirr or lisimoss -2b els veraGE WVERAGE ! “pags ‘Maoc) "Moor) 7 . i iad ny §ial 5 3 2 wie aed HSE 8 ARIZA SX £2 MIDDLE WEST WEST SouTH ratios Lxpressed as Rercentages Cuart 2b—FreqQuency DisTRIBUTIONS OF THE REVENUE-TO-NET- Worta Ratios oF PusrLic Uriity ComPANIES BY GeocraruIcAL DisTrICTS Reference to Chart 2b and its accompanying table will show this clearly. The concentration of ratios for the West is in the two lowest ratio-groups, i ry 1 RE while in other sections of the country the concentration is several groups higher. Summarized figures showing this condition are as follows: Middle Percentage of cases: East West West South (1) below a ratio of 24... 24% 30% 61% 43% (2) below a ratio of 40... 60% 70% 84% 82% By the time a ratio of .40 is reached as a dividing line, the proportion of cases below this point in the West and South is about the same, but the proportion in the lower range of the ratio scale for the East and Middle West still lags behind the others. Or, put in the reverse way, the pro- portion of cases of high ratios is greatest in the East, with the Middle West next, and the other two districts following. The modal averages show the same general tendency as follows: Middle East West West South Modal ratio....... rare MEA 35 11 27 THE RATIO BY SIZE OF COMPANY Size of company as measured in total assets makes some difference in the ratio of Revenue to Net Worth, as will be observed in Chart 2c Bimcau or Bosimess Reseancn Universirr or litivors-2¢ 2 AVERAGE et AVERAGE Wwe (Moos) i 35 Wo, SE Nl y ef Liat! Cs Rs aye 58% 8RK5%5Q § R83 3R5 8 $808 gukag p 885382] 8H ISR S70 9 MILLIONS OF ASSETS 10 70 #9 MILLIONS OF ASSETS SOMULIONS OR OWER OF ASSETS Ratios Expressed as Lercentages Cuarr 2c—FRrEQuENCY DISTRIBUTIONS OF THE REVENUE-TO-NET-WORTH Ratios oF PusLic UriLiry Companies By Size oF CoMPANY 0187 and its table. There seems to be a tendency for the larger companies to make a slightly better showing. If a ratio of .32 be taken as marking a dividing line, the proportion of cases above that point will be as follows: Size, 50 Size, 5-9 Size, 10-49 millions millions millions and over Percentage of cases above a ratio of .32... 41% 49% 54% The same showing appears in the averages (modes) which are, .20, 29, and .35, respectively, for the three sizes of companies. In addition to these characteristics there are two other points worthy of note. The first has to do with the concentration in an interval of 24 per cent (.08 to .32) in the small companies of some 55 per cent of the small company cases. On the other hand a 24 per cent interval for the other companies extends from the ratio .24 to .48—much higher in the scale—and includes about 50 per cent of the cases. The other point is the relatively large proportion of cases (13%) for the largest com- panies which falls in the lowest ratio-group. This unusual condition in the first ratio-group tends to prevent the modal average from satisfac- torily expressing the total number of cases in a typical figure. THE RATIO BY YEARS Judging by the general outlines of the bars in Chart 2d, the effect of different years upon the distribution of the ratios along the scale Bomras or Busmess Reseach Unwersiry or liiimors -2d ute 7 Que ERAGE AVERAGE iad Moog) a : ; FRB FFI : 5 . FEE 8 AAFI ZX I eR3 YEE IN /.. /9/9 /92/ Ratios [Lxpressed as Rercentages Cuart 2d—FreqQuency DisTRIBUTIONS OF THE REVENUE-TO-NET-WORTH Ratios oF Pusric UriLity ComPANIES BY SAMPLE YEARS £19] suggests that the years influence the distribution of the ratios but little. There is some tendency for later years to show less irregularity among the higher ratios than the earlier years; if the tops of the bars for later years were connected by a continuous line, it would, on the whole, pro- duce a smoother curve. The relative number of cases above a given ratio, however, indicates a slight tendency for more cases to fall among the higher ratios as time goes on. Percentage of cases: 1917 919 1921 1924 {1Y" above ai ratin lef ®32 LIL Nas 52% 52% 51% {2): above abraticiofi 40..oit is i Fa, 30% 36% 33% The year 1919 makes a better showing in revenue per dollar of owner- ship capital than does 1917; and 1921 is better than 1919, especially above a ratio of .40. In 1924, however, there is some reversal of trend which brings the ratios back to approximately the 1919 condition. The averages (modes) are quite uniform for three of the four selected years; the 1919 average was .35 as compared with .28 or .29 for the other years. In this year the average shifted into the next higher ratio-group, since the greatest concentration in one group then appeared in the 32-40 group. By 1921 the largest group was back again at 24-32. THE RATIO GROUP ACCORDING TO TYPE OF COMPANY In some respects the most striking contrast associated with this ratio is found here (Chart 2e and Table Ile) where the ratios are classified according to whether the companies are Gas and Electric, Traction, or Holding Companies. The distribution of ratios for holding companies is very different from the others, principally through the marked concentration in the lower ratio-groups and the small proportion of cases in the higher groups. Some of this contrast is shown in the following summary: Gas and Percentage of cases: Electric Traction Holding (1% aboviela ratiohof 40.0. VL A340 36% 13% (2) below a ratio of 40........ 66% 64% 87% The largest single ratio-groups for the three types of companies and the modal averages are as follows: Gas and Electric Traction Holding Largest single STOUD. chile <i lere2A—32 24-32 00-08 Percentage of cases in that group..... 19% 21% 29% Modalliavenagelit oh. ls. stasis stn ielate 29 28 —_ [ 20] The first, and lowest, ratio-group was the largest group in the hold- ing companies. Almost 30 per cent of the holding company cases falls in the lowest ratio-group, as compared with 5 per cent and 2 per cent in the lowest group of the other two classes of companies. Bureau or Buswess Reseancy Unmversiry oF liinols-Re Ayeorg dvepace AVERAGE " ( - (Moor) (Mone) t % < Nos ¢ Pa 3X8 § 88 3X58 8 34 oR e 1% §3 83 8 28% 338 2 GAs AND LLECTRIC TRACTION HoLomwe COMPANIES Ratios Lxpressed as Rercentages CuarT 2e—FRreEQuENCY DISTRIBUTIONS OF THE REVENUE-TO-NET-WORTH Ratios or Pusric UriLiry Companies By Type oF ComMpPANY The class of greatest concentration is here the first ratio-group. There- fore no average is shown. The average (mode) for gas and electric com- panies and for traction companies are practically identical with the average (mode) of all the 1417 cases as shown on Chart 2a. - APPENDIX TABLE Ia.—PRODUCTIVENESS OF TOTAL INVESTMENT Frequency distribution of the ratios of Gross Revenue to Total Assets of 200 public utility companies, 1915-1924 Ratio Ratio Cumulative Percentage: Cumulative Groups Frequencies Frequencies Distribution Percentages BO-080 hrs rate, 56 56 3.8 3.8 B-079. 0 shila 2 SA 208 264 14.1 17.9 08-1190, JL ase eld 219 483 14.8 32.7 12-1590 0g ae 289 772 1935 52.2 16-199. meme tii: 239 1011 1652 68.4 SE i Rp 203 1214 13.7 22.1 as tal i Soar 104 1318 7.50 89.1 2 - 58 1376 3.9 93.0 a A 39 1415 2.6 95.16 BO-B00 SA ha bt 27 1442 1.8 97.4 A023 Cr Le re LE 17 1452 1.2 98.6 LE PL el he 14 1473 1.0 99.6 48519. nr es 6 1479 100.0 Average: Approximated mode = ratio 14.1 r 1229 REVENUE TABLE Ib.—GEOGRAPHICAL DISTRIBUTION OF THE TOTAL ASSETS RATIO Frequency distributions of the ratio for public utility companies by territorial divisions. East Middle West West South Ratio Groups Fre- | Per- Fre- | Per- . Fre- Per- | Fre- | Per- quen- | cent- quen- cent- guen- cent- | quen- | cent- cies | ages | cies , a es | cies. ares | cies | ages Totals. .,.....iemv-2 R701" 1100, 399, Y100." 12319100. 1:3 100. 00-039... ......0¢ ++: 1S 2.6 3 3 21 | 17 6 4 | 4.1 04-079.....: = 7S 10.7 %5, 47 113 2 + Ti 136.2 08-119...... . 70 10.0 | 62 1 2 .9+ 23 | 16.9 12-139... ...... 123 17.6 199°" 1123.8 10.41 43 129.1 16-199......... 175 17.808 ‘7Z5a1t 8 £ 1R.2 20-239... ...,] | 17.3 Sa ing 24-279... ea t 3.790025 } 4.7 B80 ives ny 09 | 5.1 karan ; 0 22 32-350....1...... ROY | 3.31 pri 36-399... .. i. : Li 26 EST, 40-439. ...... 5". ZN 4 44-479. . ......... ory | .. §3-319, — ho oe Averages: Approximated Mode 18.0 14.1 1 11] 25 3. 14. [u23 REVENUE Frequency distributions of the ratios for public utility companies according to the amount of total assets. With assets of With assets of With assets of Rot 5 to 9 millions 10 to 49 millions 50 millions or over atio Groups Fre- Per= Fre- Per- Fre- Per- quencies centages quencies centages quencies | centages Totals inn 454 100. 736 100. 289 100. 00-039. .... 10 2:2 35 4.7 11 343 04-079... .. 73 1651 95 1259 40 13.8 08=119 Te 75 16.5 102 1359 42 14.5 12-1594. 110 24.3 136 | LSS 43 14.9 16-1997. 58 12:8 125 1780 5¢€ 10 4 20-2394 52 ISS 114 15715 B7 6 Sat 25 55 57 7 37 28-319..... 21 4.6 20 299, 1.7 3 32-359... 10 2.2 A143 36-399. ....1 12 2:6 10 i 1.4 Uo 40-439. .... 7 1:5 ¢ 1 - 44-479. .... 2 7 1.0 oa! 18-519... 54 * Averages: Approximated Mode 13.7 2 T= [240 14.2 17.8 REVENUE TABLE 1d.— TOTAL ASSETS RATIO BY SAMPLE YEARS Frequency distributions of the ratio for public utility companies in selected typical years. Fairly Y f R War year normal Sal» poent year NT : depression of prosperity with high year with os OCDE LY : : and declining and normal PIOSDeritLy jncreasing activity activity Ratio activity . Groups 1917s 1919 1921s 19242 Fre- | Per- Fre- | Per- Fre- | Per- + Fre- | Per- quen- | cent- quen- | cent- quen-| cent- quen- | cent- cies | ages J cies ages cies | ages cies | ages Totalse i. ones in. R123: 1100. 156 |100. 163 1100:: y 170 1100. 00-039... 3.0.0 000 5 4 1 SEEN 3.3 5 yd 4 2.3 04-079... ..... 53... 03 LI | 2, 16.0 22 18.5 17 10.0 RT CORA 15 10.3 22 [13.5] 28 | 16.5 12-139... .... 0". 30 4 Bd 121.870.1429 17:8 1136 N2¥. 2 EOD od SOR SRI 1 oT 15, 35. 20-239... ......5. 9", 3 xz 12.9 a 24-2700 he ye 1 2 13:5 5 3-310. vin afl ats 3.2 > 1.8 J 32-359. 0 ve nine niin A , 1-8 5 36-399... 3. Beans ae 3 40-430 rr TN BAAD an Seite 43-519... : Averages: Approximated Mode 13.8 14.6 hi] aFollowing the indications of the Harvard B Curve. 14.0 wu REVENUE TABLE Ie.— TOTAL ASSETS RATIO BY TYPE OF COMPANY Frequency distributions of the ratios for public utility com- panies according to type. : Gas and Electric Traction Holding Companies Ratio ) Groups Fre- Per- Fre: {| "Per- Fre- Per- quencies centages quencies | centages quencies centages Totals..." 906 100. 388 100. 183. 100. 00-089... 17 1:9 12 3. 27 14.8 04-079... 03 PR 34 8.8 66 36.11 (0-119 50.050 136 [ISO 60 1550 23 12.6 12-1340 168 18.5 88 22.7% 33 18.0 16-199 88 0 141 15.6 84 2 6.5 20-239 5.0. 143 15.8 49 1 6.0 24-279... .%". 77 355 27 7 . 28-319. 5... 47 5.2 11 20% .. 32-359... 1% 28 5.5 153 vo 36-399... 18 2.0 150 ng 40-439. ... | 13 1.4 1.0 44-479. .... ; 2 2.1 418-519. .5..1 c : . I Averages: Approximated Mode 14.0 Hol [rea + 12.3 5.8 "76 TABLE 11a.—PRODUCTIVENESS OF OWNERSHIP CAPITAL Frequency distribution of the ratios of gross revenue to net worth of 200 public utilitv companies, 1915-1924. Ratio Ratio Cumulative Percentage | Cumulative Groups Frequencies Frequencies Distribution Percentages 00-079. i000 + ign J wish 106 106 7.5 7.3 08=159. . coin» 5 Gansidn cos 193 299 13.6 21.1 102230, civ rsmwiniviy 168 467 11.9 33.0 24-319. 551... Od. LQ 275 742 19.4 52.4 32=399.. 0. 4B Ln 228 970 16.1 68.5 40=4700. 38 i of TE 4 AR 171 1141 I.1 80.6 48-559. . .00. . » Lo Ble J LS 98 1239 6.9 87.5 56=635.. .505. LL ho. 00 70 1309 4.9 92.4 64=719.. .i%. .. A300. 45 1354 3.2 95.6 72=199,..%...L La... .80 1 1381 1.9 97.5 86=879...51... & Kn... . it “f 1398 oi 93.7 838-850. ..0. 00 2 hits. 5. 1408 . 99 4 96-999... . om 1°17 dL | Average: Approximated mode = ratio 28.6 og 1 TABLE 1Ib.—GEOGRAPHICAL DISTRIBUTION REVENUE OF THE NET WORTH RATIO Frequency distributions of the ratios for public utility companies by territorial divisions. East Middle West West South Ratio ; — : Groups Fre- | Per- Fre- | Per- Fre- | Per- Fre- | Per- quen- cent- quen-/ cent- quen- | cent- quen- | cent- cies ages cies = ages cies ages | cies ages Morale, 0 ot Ee a wt FG 70 0, 387 100. 210 (100. 148 1100. 00-079 50... 5. GE CH AY G2 Rf 21 47 22.4 9 6.1 08-159............... 55 8.2 61 15.8 53 25.3 24 16.2 16-039, ules, vba 62 9.52 48 | 12.4 28 1373 30 20.3 2A-3U90%, a ea SE aE 74 119.1 3215.2 38 25.7 32-3BG LK. Ene BT 1G) 16.4 | 81 | 20.9 1A a4 21 14.2 AAT AX. es NL 0S 15.6 45 11.9 1. { / 4.7 18-5300, 5 Liiva) Cos 8.5 20 52 1 5 Te 6.7 Se-aRphV ol Ela tel 1 Mad 1 1d a ed Gl FUGRRY hd Te 493 11 | 2.3 1a, 0 oy PRES RE SO Eh : 2.3 oo 7D ee GE i 1.3 LL S80 80 a 190 96-909... 0. i co Averages: Approximated Mode = ° 1 29. S550 11.0 27.3 L281 REVENUE : TABLE Ilc.— NET WORTH RATIOS BY SIZE OF COMPANY Frequency distributions of the ratios for public utility companies according to the amount of total assets. With assets of With assets of With assets of Rat 5 to 9 millions 10 to 49 millions 50 millions or over o Groups Fre- Per- Fre- Per- Fre- , Per quencies centages quencies | centages quencies | centages Totals: ....5- 424 100. 708 100. 285 100. 00-079..... 18 4.3 52 7.3 34 12.6 08-159. . :.. 77 18.2 93 13.1 2° 8.1 16239, .... 79 18.6 68 6 2 7.4 24-319..... 77 13.2000 vil45 er : 18.2 32-399..... o 19.6 40-479... .. 7 48-559. .... 2 0 56-639. .... 14 J. J 64-719... .. 13 4.3 72-799..... 0) 2.3 80-879..... i 88-959..... 1 96-999. ....1 Averages: Appoximated Mode 20.0 : a 29.2 35.+ [291] REVENUE] TABLE 11d.— NET WORTH RATIOS BY SAMPLE YEARS Frequency distributions of the ratio for public utility companies in selected typical years. Fairly War vear Sony ee of Recent year : 3 : epression of prosperity with high year with a ¢ : : and declining and normal Prosperivy RLS activity activity Ratios activity . G _ RPS 19172 1919 1921s 1924s Fre- | Per- Fre- | Per- Fre- | Per- Fre- | Per- quen- | cent- quen- cent- quen- cent- quen-| cent- cies | ages cies | ages cies ages | cies | ages Wotal.sn oh ae on vate. 2 SRL 20 R100 NY 52 100: 157 5100.7 ¥ 162-3100. D0-079" fib or. i SE 9.2 12 | 7.9 ONE 57 6 3.7 (08-1 80. ibn at 7 SAD 13. 302315. 1 23 ' 14.6 21 | 13.0 16-000. rE Aedes TY 11. Tans SSH 1S 20 Ia 4 -SUGL LL Xe eas SS 20.395 | 1673 | 29NNR1S5.S 3310820. 4 32-399 fei Re a 15.8 Bt 217 5 hn 28 17.3 Ld TO Lt 2 9.9 i : 5 14.2 A058. rl ah i =I? gi 14 ; 8.0 36-630. 0a ve on g 3.3 12 7s 4.9 G4-TU0 0 Ler es] La 7 45 es. 7 0 vn TA 2 Gill I 1.2 BOER clint don OO 1.7 a B2B80 li na ae ; 000 re is sei: NE > Averages: Approximated Mode 28.2 34.7 29.1 ‘ 2Following the indications of the Harvard B Curve. 28.7 L301] REVENUE TABLE Ile.— NET WORTH RATIOS BY TYPE OF COMPANY Frequency distributions of the ratios for public utility companies according to type. Gas and Electric Traction Holding Companies Ratio Groups Fre- | Per- Fre- | Per- Fre- Per- quencies centages quencies centages quencies | centages Total=h..... 889 100. 350 100. 178 100. 00-079..... 47 5.3 2.0 50 29.2 08-159.....: 113 12:37 43 12.3 37 20.8 16-239.....] 101 11.4 47 13.4 20 11.2 24-319... 172 19.4 75 21.4 28 15.7 32-399... .. [FF Bz 15.2 26 40-479. ....| 137 9.7 3 48-559..... 5 z 7:2 56-639. .... 4, 22 6.3 64-719. .... 17 3.4 72-799..... 1 4.0 80-879..... 1.4 88-939..... : 1:7 96-999. .... 2.0) Averages: Approximated Mode 28.9 ray 28.9 GROSS REVENUE TABLE Ille.— “FIXED ASSETS RATIO BY TYPE OF COMPANY Frequency distributions of the ratios for public utility companies according to type Gas and Electric Traction Holding Companies Ratios | Groups Fre- Per- Fre- Per- Fre- Per- quencies centages quencies centages quencies centages [Lotals........ ERO14 100. 397 100. 182 100. 00-0897". 15 1.6 12 3.0 26 14.2 04-079..." 94 10.3 30 7s 57 31.3 03-119..... (E114 12.5 53 133 29 15:19 12-159... 143 15.7 73 18.4 19 10.4 1-199. | 131 14.3 18 20.4 15 8.2 20-239... 1 123 13:5 61 15:3 15 8.2 24-2790 oh. 105 1155 33 8.3 .6 23-319." 67 7:3 13 3.3 0 32-359... | 41 4.5 13 0 : 1.6 36-399... ..1 27 3.0 E , bo 40-439. .... 20 2.2 1. 15. 44-479 5.4 11 1.2 6 | 45-519. ...% 13 LF iy en 52-559. .h e oe 56=599. Li 10) 159 60-639. .... ; 1.0 .6 64-679..." n .6 63-719... ; € 727759... ‘ : : 76-799.%..\. Averages: _ Approximated Mode 14.1 7a Fin ly ts 6.1 ey PUBLICATIONS OF THE BUREAU OF BUSINESS RESEARCH UNIVERSITY OF ILLINOIS Items marked with an asterisk (¥) may be obtained free of charge. *Bulletin No. 1—Illinois Taxes in 1921. 8 pages. *Bulletin No. 2—TIllinois State Revenue, 1895-1920. 12 pages. *Bulletin No. 3—The Tax Rates of Illinois Cities in 1921. 16 pages. Bulletin No. 4—Books about Shoes. 20 pages. (Out of print.) Bulletin No. 5—Methods of Training Emplovees in Stores of Moderate Size. 20 pages. (Out of print.) *Bulletin No. 6—Books about Books. 28 pages. *Bulletin No. 7—The Statistical Characteristics of Bookstore Sales. 32 pages. *Bulletin No. 8—The Method of Analyzing Business Data. 46 pages. *Bulletin No. 9—The Current Ratio in Public Utility Companies. 28 pages. *Bulletin No. 10—The Productivity Ratios of Public Utility Companies. 32 pages. and its table. There seems to be a tendency for the larger companies to make a slightly better showing. If a ratio of .32 be taken as marking a dividing line, the proportion of cases above that point will be as follows: Size, 50 i Size, 5-9 Size, 10-49 millions millions millions and over Percentage of cases above a ratio of 32... 41% 49% 54% The same showing appears in the averages (modes) which are, .20, 29, and .35, respectively, for the three sizes of companies. In addition to these characteristics there are two other points worthy of note. The first has to do with the concentration in an interval of 24 per cent (.08 to .32) in the small companies of some 55 per cent of the small company cases. On the other hand a 24 per cent interval for the other companies extends from the ratio .24 to .48—much higher in the scale—and includes about 50 per cent of the cases. The other point is the relatively large proportion of cases (13%) for the largest com- panies which falls in the lowest ratio-group. This unusual condition in the first ratio-group tends to prevent the modal average from satisfac- torily expressing the total number of cases in a typical figure. THE RATIO BY YEARS Judging by the general outlines of the bars in Chart 2d, the effect of different years upon the distribution of the ratios along the scale TT Bomenu or Geuness Resgancn Lnwersirr or lipimors -2d “= YT RAGE LY or a i, 3" 13 NS 54 SAB 8B SR 82854 4 + & § ¢ 3 38% 3X I RR JeARYIZY se, ER 19/7 19/9 1927 192% _ Ratios Lxpressed as Rercentages Cuart 2d—FreqQuENcy DISTRIBUTIONS OF THE REVENUE-TO-NET-WORTH Ratios oF Pusric UriLity CoMPANIES BY SAMPLE YEARS [ 19 1