Okolona messenger. (Okolona, Miss.) 1900-current, 1903-04-01


concern.
The Chicago Journal takes issue with the wise in
struetOr. It replies that those companies which
have the most water in their shares have the least
"gOOd WILL"
EGO through the whole list Of corporations" says
the Ceicago paper, ''and you will find that those
companies which are not intrenched back of monOp-
Olies have little or no water' in their stocks The
absence Of monopoly makes competition possible.
Competition makes dishonest profits impossible
Water is possible only through exOTbitant profits"
Neither the professor nor The Chicago Journal
it seems to u.s. is wholly wrong. But each is right
only in part It is true that many cOroratiOns cap
italize their good will. 1t is also true that such
capitalization, within conservative limits, is custom
ary and proper. But good will is not the only ba
sis Of ttwater'' in stocks. Valuable patents, nat
ura advantages, organization, foreign connections,
secret formulas and prOcesses-al these Feek0ned
in capitaizing q concern whether it be an "indus-
trial or railroad. The pressed Steel Car company,
for example, is capitalized far beyond the sOcalled
physical value OF its plants. It's large capitaliza
ton is justified on the ground Of the earning capac
ity Of its patents The fact that its preferred stock
sells for less than par and its stock at about
65c shows that the public do not as yet place the
same valve on these patents as their promoters.
In the case of concerns like the Amalgamated
Copper company and other mining and railroad cor
pOratiOus, natural advantages capitalized; and
the "water' consists mainly Of the value Of
the corporations property over that rival concerns
whose erning capacity is not so large.
Sometimes the mere organization and connections
of cnmpany form a bssis of share capital. The
stocks Of the steel trust and the sugar trust both
dependent arey this consideration for their value
Some concerns have all these elements as factors
in their capitalization The steel trust for nsionce
has in addition to its natural advantages and vast
business connections, valuable patents and secret
formulas. Add to this really marvellous organatiOn
of that merger and its subsidiary companies, and it
is not strange that its directors should set value
on its shares considerably in excess OF what the
physical plants could be reproduced for.
There is nothing iniquitous per Sc in the "water-
ing' of cOmpany's stocks, provided the earnings
Justify it. The value Of a concern in the market is
after all measured by It's earning capacity, mat
ter how much theorizing we may indulge in. The
true vice OF inflated capital lies in the realizing OF
fictitious value, based exaggerated estimates OF
future earnings. Let us suppose for instance, that
group OF factories have an aggregate net earning
capacity of 100000 per annum. Now, trust pro-
noting syndicate comes along and figures that if all
these plants were united under corporation, the
earning capacity could be increased to sl,OO0,OOO
0c0 per annum. They accordingly capitalize their
trust at s2O OOO OOO-half of which shall be- let us
say per Cent preferred stock. The common stock
has intrinsic worth, and is rendered valuable
ly on account Of the speculative prospect that the
consolidated plants will earn enough to pay divi
ls on the common stock after having paid the
I'll per cent on the preferred.
In some cases the predictions OF the trust organ
izers justified and the investors in the watered
stocks draw large dividends and have the pleasure
OF watching their securities climb in the market
In other cases-and more fTeqUently-things do not
turn out as expected, and the unfortunate stock
holders perish from drowning.
Excessive bond issues and various other devices
to realize the nnearned profits Of corporation over
the heads Of the common stockholders are perhaps
the most Ubiquitous form Of over capitalization.
AS rule, however, these things adjust them
selves The market value oi4a stock viii pretty
generally settle down at its true value r the stock
is grossly watered then it viii sell below par 20 the
extent OF the watering. The only trouble IS that
the investing public is frequently deceived a to the
assets and earning capacity Of a corporation. Here,
as IN various other phases Of the ttrusti problem