The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1914-02-14

and they cannot find enough money for
their needs.
II Is important to anyone investing
money in industrial enterprises-or. in
deed. in any kind Of an enterprise-to
! hgure as closely as he can on the char
| acter of the business which produces the
profits. II 1t il business in luxuries or
an enterprise that depends for its life
and its profits upon a fad. an innovation
or some special trick Of selling or some
passing style. 1t Is hardly likely to con-
stitute q sound investment. no matter
how well 1t may be presented 10 the pub
lie II 1t Is railway making enormous
amounts Of money carrying oil from an
oil field. or copper from a copper mine.
or timber from a timber limit. 1t ought
to be fairly obvious that the days Of its
pront-producing are going to be extreme
ly short. The history of some of the
smaller roads Of Colorado and other
States. where speciality railroads OF this
sort have existed. give US ample enough
fact to demonstrate the theory.
In the industrial field. however. there
is need Of even more searching knowl-
edge than in the railway field. Indus
trials cannot be treated as a class in the
investment business. Every one has to
be taken by itself. Management has to
be considered as well as product. else
one never can be sure whether or not
somebody is not going to blunder badly.
as in the case OF the motor company
cited in this article, and so destroy the
roft-producinS function Of the enterprise
at one sweep. These things happen stead
lily and constantly in the business world.
as everybody who has been closely in
touch with business knows.
There is an old-established leather COM
l.
company. It was founled and built up
Of this one man, who 10 now an old man.
He has turned the business over to his
younger relatives Neither OF them know
the leather business and both Of them
have theories as to how II can be run.
It II practically a foregone conclusion.
not only among those on the outside who
know about the situation, but also among
the men in the company themselves that
the business of that company will de-
crease 80 per cent in the first five years
Of the new management. That illustrates
how delicate a thing industrial success is
likely to be.
The investor. therefore. contemplating
Industrial investments must recognize
that he takes a substantial risk with his
money. He should see the balance sheet
to ind out how big the risk is, and il
he discovers that II Is too big for him he
should withdraw his interest and bestow
1t somewhere else where he can find less
risk even IL at a return less profitable.
The obvious answer to this Is that to
the ordinary layman a balance sheet Of
any company is so much Greek. To
certain extent that Is true. yet there
arc some signs that are so obvious that
hardly any one can miss them. Also. |
any banking house or any one trained
in industry can look over a balance sheet
and tell pretty we'll whether the company |
Is weak or strong financially. Things
like floating debt. lack OF depreciation |
charges. and other fundamental items |
Of this sort stand out quite clearly in !
q comparison between q balance sheet of
one year and that of the next, and such !
az this at least are easy |
to check. Anyway. II il a safe rule that |
one should not 60 too far into any en- |
terprise II he cannot understand that en- |
terprise and reads its figures correctly. |
money into something that you |
cannot understand is pretty blind invest
ment at the best and In usually On un-
wise Investment.