The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1912-02-03
Difference Between Rail Stocks
and Bonds Not Known.
lState Legislatures Have Shown
Ignorance in This Line.
GUARD AGAINST PROFIT LIMIT
United States Securities Conn
mission Gives Out Advice.
Other Items of General Interest
in Traffic World.

The report of the United States Rail-
- e.o[,,,ities commission furnishes
.ono. valuable information about
..stocks and bonds" the difference be
&z7asn which words not being clear TO
,,a,v peeple. The commission has for
,,,ulsted these definitions of the two
words:
"A railroad bond is essentially a note
shade by the company; a promise TO
nav a certain amount of money say
ore thousand dollars, at specific GATE
nf maturity. and to pay interest AZ
uracfAed rates in the meantime. Tne
,blfpation is definite. The value is linz
sted nv the terms of the instrument
PM a share of railroad stock is OF a
ssifferent. and more complex, character
IT represents two things instead OF one
That a certain sum has peeh P pau ~
and that the holder OF the STOCK mas d
certain share in the ownership u ~.
.s-o1rs 70 he The second of these Things
.ss that which ultimately gives the stoch
rsrti6cat.a its value. In the case OF
-vailrOad bond the fact that II cans Aol
one hundred or one thousand uoltdLs Il
var from being the determining factor
If &c but one incident among many
Even in theory it purports mercy 10
show that this was the amount oIlS lil
allv paid by the subscriber when th3
s-osd was built 1t does not create an
obligation to pay it's face value, nor
does that face represent its money
value as A share. The value varies
with the development of the property
as & whole. 60
sum. its interest a fixed charge. The
value of a share of stock is essentially
variable
LEGISLATORS Did Not Know.
The report of the commission con-
Sinues:
the distinction between a bond and
share of stock been more marked than
in the legislation of the several states
regarding stock issues of railroad cor
porations. It has led our lawmakers TO
lay too much stress on keeping down
the nominal amount of capital needed
and having it properly used
Should q valuation of the physical
property of railroads be made, it ought
not if properly applied, to be made a
justification for reducing the amount
of the outstanding securities of the
railroads to the figure thus ascertained,
or for preventing them from issuing
new securities when the amount of out
standing stocks and bonds exceeds the
physical value of their properties as so
determined.
ANY attempt to scale down old Sc
curities is clearly out of the question.
Inc direct loss from the QnS6lIleInenl
of legal and equitable relations would
be very great. The indirect loss from
the withdrawal of confidence
in American railroad investments
would be Unreasonable. Such
readjustment would become
archaic almost from the outset, be
cause an adjustment of securities bas-
ed upon the values of today might be
totally erroneous tomorrow. 1t would
be equally inadvisa bic, in cases where
outstanding securities were in excess
of the physical valuation. TO prohibit
the issue of new securities outstand-
Ing; because this principle, if gener-
ally applied would prevent roads sc
situated from securing the capita
needed for the service of the cOmmun-
1tN.
No Disturbance of Stocks.
ANY disturbance but a voluntary
one of the existing amounts or status
of bonds or stocks validly issued is
clearly inadmisSible; and in genera
there should be as little disturbance
as possible of the relations today ex-
listing between different classes of Sc
Curity holders.
The absence of any attempt to base
security issues upon revaluation vii
emphasize the true character of Oul
American railroad stocks as being es-
eentially participation certificates Civ
ing a right to proportfonate share
of whatever profits may be earned
rather than evidences that a certain
specific amount of money has actual
~ been invested in the property.
No restrictions except those o
publicity should be placed upon thu
power of the directors to issue new
stock pro rata to their stockholders a
or above par, even though the prize
received be less than the existing mar
l<et value of the old stock
mo attempt should be made b.
statute to limit railrn1d profits to
fixed percentage. or to treat j
cash dividend as necessarily indicat