APPENDIX I
TABLE V

RELATIVE INFLUENCE OF Gross EARNINGS
ON NET EARNINGS

I

%

AND OF ToTAL EXPENSE

Group*

Gross Earnings more
influential, per cent

*See Table I of Appendix 1

BEST VALUE OF GENERAL RELATIVE INFLUENCE OF GROSS
EARNINGS AND OF TOTAL EXPENSE RATIO CHANGES ON
NET EARNINGS RATIO CHANGES FOR ALL 408 BANKS

An approximate, general measure of the relative influence of
gross earnings ratios and of total expense ratios on net earnings
ratios, for any of the 408 banks picked at random, regardless
of (group) location, has already been given as 1.54 is to 1.00.
This result is based upon equations (6) and (7), each being derived
 from the 408 banks treated together in one group. This,
however, it will be recalled, was a first approximation. It was
later shown that while the law of variation of net earnings with
total expense varies for the different groups, that of net earnings
ratios with gross earnings ratios is substantially the same for all
groups, individually and combined. In order, therefore, to obtain
 for any bank in this district, picked at random, a general
measure of the relative influences of annual changes in gross
earnings and of total expense upon net earnings, it is necessary,
first, to obtain the best general expression like (6) for all groups
combined, and then to use this in connection with (7).
To obtain this best expression for the 408 banks combined,
the separate values of K, and E/, shown in Table IV, were
weighted inversely as the squares of their probable errors, and
the weighted mean values determined. The computation of the
best obtainable (general) value of E,’, according to this process,
is given in Table VI.
The values of E,” and their probable errors in Table VI are
the same as those shown in Table IV. Each value of E,” is
weighted inversely as the square of its own probable error. The