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 use- 
fulness 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 indi- 
vidual enterprise may calculate ratios for its business over a sufficiently 
long period of time to develop in the minds of its executives an ap- 
proximate ‘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 quan- 
tities 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 character- 
istic 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.