Ratio Measure

Ratio measure refers to the highest (most complex) level of measurement that a variable can possess. The properties of a variable that is a ratio measure are the following: (a) Each value can be treated as a unique category (as in a nominal measure); (b) different values have order of magnitude, such as greater than or less than or equal to (as in an ordinal measure); (c) basic mathematical procedures can be conducted with the values, such as addition and division (as with an interval measure); and (d) the variable can take on the value of zero. An example of a ratio measure is someone's annual income.

A ratio measure may be expressed as either a fraction or percentage; in addition, a ratio measure may be written as two numbers separated by a colon. For example, if Susan earns $40 per hour and John earns $20 per hour, then the fraction of Susan's pay that John earns can be expressed as 2/4, the percentage of Susan's pay that John earns as 50%, and the ratio of John's pay to Susan's as 1:2.

There are many situations in which a ratio measure is more appropriate than a total or mean or other descriptive statistic when reporting the results of a survey. Ratio measures are utilized in the business world, in health care, in banking, and in government, as well as in other applications.

In the business world, there are a number of applications involving ratio measures. For example, suppose that one purpose of a survey of a sample of businesses is to assess liquidity. A commonly used measure of liquidity is the current ratio measure; this ratio measure is an important indicator of whether the company can pay its bills and remain in business. It is calculated by dividing a company's total current assets by total current liabilities for the most recently reported quarter. Thus, if a business has total current assets of $450,000 and total current liabilities of $200,000, then its liquidity ratio measure would be $450,000/$200,000 = 2.25. However, in the sample, a number of businesses are sampled and each reports its total current assets and total current liabilities. To determine the liquidity of the sample of businesses, one would calculate the total of the reported assets of all of the sampled businesses and divide by the total of the reported liabilities of the same businesses. That is, if the total assets of the sample equal $10 billion and the total liabilities equal $5 billion, then the cost [Page 693]ratio measure of the sample equals $10,000,000,000/$5,000,000,000 = 2.0. One would then generalize to the population from which the sample of businesses was drawn.