Los Angeles herald., 1890-08-25
SHARP'S THE WORD.
Land Company Stockholm to Arrive
at Its True Value.


EDITORS HERALD:-So many of our
citizens are holders in land companies
that the following remarks may be
found of interest. Appurtenant to such
stocks are three values, one real and two
nominal. The real is the asset value,
and is the proportion of the whole value
divided at any time by the number of
shares issued.
At starting of a company, pal value
may be stated to be Identical with asset
value, as par is understood to indicate
the capitalization of entire stock into
equal shares. But this similarity is
only true before any business is done.
Par value, as printed on face of the
stock certificates, is always fixed guam
titv; but the moment an expense is
incurred or profit gained the asset value
has diminished or increased accordingly
and remains so until readjusted by
assessment or dividend, or is carried
forward possibly even until final realiza-
ton is reached. Par value Justly there
fore may be termed, for all practical pur-
poses, only nominal value. The other
being at all times subject to huctuation,
not only by reason of natural circum-
stance, but also by artificial means, is
not certain criterion of actual value.
When buying or selling stock ascer-
tain first the value Of the assets and the
number OF shares issued, and then the
arrived at. Ii the market price or quo
-, |, ,rl,
than that, and if the company's bal
ance sheet does not display the reasons
therefor, there must exist either an
abnormal condition of general business,
or artificial means are being used to
bull or bear the market; or, it may be
that both sets of influence are at work.
To illustrate: take the case of GER
tain land company in Los Angeles, with
issue of $685. paid up shares, ofpar value
500 each. In last July it's assets in
land reduced by 20 per cent for contin-
gences), cash and bills receivable, were
appraised at $613,2S2 giving real value
of about $97 per share. AT the last gen
eral meeting, in January, certain divi-
dends having been paid to the stock
holders, the president declared that the
par value of the shares was then just
S55 each, and incidentally it was there
after proposed that stockholders
agreement be entered into, whereby any
party desiring land for shares, by turn
ing their shares into the hands of a
trustee for the company, could get land
against their shares, to be credited at
the rate of $55 each the shares so taken
to be divided pro rata among the remain
ing shareholders. The amateur finan-
cier's argument for $55 parvalue being, ii
the shares at starting were worth 500
each and if about $45 had since been
received, Therefore about $50 remain for
present value. The fallacy therein was
in the assumption that par value is
variable. Whereas at starting the cost
or par value was 500 per share and is
always fixed quantity, IN January the
estimate value OF the land had greatly
increased over cost and there were some
undivided profits SO that only the as
set value of the shares should have been
stated and that wasthen at figure con
siderably over 500 per share. In the
! following July, after further dividends
had been paid, it was the case that as
aforesaid the asset value was about SOL
per share and by parity al reasoning, i
share was worth 500 at starting, il
was worth $97 in July.
Does the said presidents announce
ment that the par value of the stock was
only $55 per share come under the cate
CORY of artificial means" and was its eff
feet to bear the market price? Well
this at least is known, that very lately
the said president, emboldened by sal
airy and fees, and officially cognizant
that further dividend of about 50 cash
per share (resulting from land sale just
confrmed) was about to be made, but
without announcing that fact, bought
from one of the shareholders a large
block OF the stock at $50 per share and
paid for the same partly in cash, and
partly in another description of stock
which is reported not worth its par
This purchase was equivalent to buying
at $25 per share, inasmuch as the s.
dividend was to be received, and was in
fact received, very shortly after the pur-
chase was made; or in other words, the
knowing official cornered the innocent's
stock at about one-fourth of its actual
worth. Good bye, seller, good buy, slick
purchaser! 81 monumentum q,aeris. cir
cnmspice.