The times. [volume] (Richmond, Va.) 1890-1903, 1902-12-06
WHAT IS vsaTEHED STOCK?

1t Is said that among the numerous
bills which will be Introduced in Con-
gress TO regulate trusts will be one to
tax ''watered stock"
Some OF these would confer great
favor upon the business world If they
would say what watered stock it. We
confess t>sait we do not know. we
know what The popular definition is,
but we do not know how it is possible
to determine whether or not a corpora
ton has issued watered stock. nor do
we see how II is possible to make any
hard and fast rules on the subject
Some may say that all stock which
does not represent an actual value in
tangible assets is watered stock. but
upon that principle every corporation
In the country has great deal Of wa
tered stock aaoat. Some of the most
prosperous concerns in this country are
those whose tangible assets are compar-
atively small Take. for example. q
newspaper property. The Philadelphia
Record recently sold at public auction
for more than S3,0900Qo. But if the
Record should suspend publication to-
morrow and go out of business entire
ly its plant would bring only an inslg-
nificant sum. It's property does not con-
sist merely in presses and type and the
machinery generally Of newspaper
office. but In its subscription and adver-
Using accounts. The paper is worth
more than 100000, because it is an
established institution and has demon
strated beyond a reasonable peradVen-
ture its ability to earn good dividend
on that capitalization.
The same is true of railroad proper
ties and particularly of street railway
properties and indeed of nearly all the
industrial enterprises of this country.
Several years ago an Independent line
of street railway in Richmond sold for
something like S135 GOO. but the actual
property which the company owned,
that is to say. its track ind Its cars
and It's motive power. We're worth, as
we have understood. not more than
$4,000. Why. then. did it sell for
5000? Simply because it was a good
monev-1nake- and in a position TO earn
a fair dividend on that sum.
We have in mind an industry which
Is capitalized at something like sl5,90o.o0o.
Half of the stock is preferred stock
and the other half is common stock.
The preferred stock has always paid a
dividend but nothing has been paid on
the common stock. At one time the
common stock was regarded as almost
worthless, and it was very hard to sell
it a, any price. We suppose that the
experts would have said that the COM
mon stock vas watcred stock; that the
tue value of the property was repre-
scented By the amount of preferred stocl,
outstanding and that the common STOCK
was issued as bonus and that II had
no business to exist. But the company
has prospered, and for some time past
has been earning on the common stock
very much more than the fixed dividend
on the preferred stock. Indeed, the COM
Il not three times as much, On the
common stock as It has been paying
on the preferred stock. Therefore the
common stock. instead Of being worth
less, rs might have been supposed in
other days, is now very much more
valuable than the preferred stock, be-
cause the dividend On the preferred
stock Is limited, whereas the common
stock is entitled to all that the com
pany can earn In excess Of the divi-
dend OH the preferred.
1t has therefore become rule in the
organization OF stock companies to