The Washington times., 1916-02-23

less than sos 900 900 in 1914 and less than
$3.50 000. 900 In 1913.
But the big sytenn is mott entirely
dependent upon operating profits. II
received a net amount OF more than
t13s,000,O00 in 1914 from misceIIan-
eous rent income. interest and divi-
dcnds on bonds ana stocks owned,
etss etc. ,,n and IN 1917 this iten, was ap-
these amounts 20 net operating In
come shows for 1914 totaf OF ap-
proKimately tS0s. GOO. 900 and for 1914
total OF more than t933, 900, ,0O0.
These items do not represent profit,
Various fixed charges must be met. a
few millions more must be paid in
miscellaneous taxes. rentals must be
cared for. and interest on debt must
be paid. The interstate Commerce.
commission. after eliminating inter
terest on funded debt as tlI2.II3, ,Os0.
After paying all these charges the
SoowSlm,ssion reported net INCOME was
This method OF figuring may not bo
entirely satisfactory. so II may be
well to carry the single system idea
little further and imagine the total
debt refunded on sound economic
principles.
Debt Must Be Paid.
A debt Is supposed TO be paid some
time. and IL In this Imaginary refund
ing process we follow sound economic
PRINCIPLES We must make provision for
payment. Suppose this be dore by es~
tablishinR a sinking fund. Some kinds
OF property We might mortgage for 100
would be small. other kinds Of prop
erty could not be mortgaRed even for
nfty years. because II would be Junk
long'before the end OF that period.
1t would appear highly conservative,
10 " A..
average sinking fund provision. In
other words. the owners OF this big sys-
tenn must get aside per cent of its
debt each year in addition to regular
interest. this sinking fund to be used
TO pay on the debt at maturity or Sc
With such provision for payment
made. II should be possible to borrow
money at : per cent. providing there
amounts could be earned. The total
debt change. therefore, would be 6 per
cent On the net debt OF $s,700, 100000.
that would mean $5S2.oOO, 900.
System Must Expand.
The system must continually expand
with the country's growth. In order
to expand II must have each year a
large amount Of new capital. This new
capital should be obtained through sale
Of stock II possible. but in order to make
the stock attractive enough to tempt he
purchaser the debt must be on a sound
basis. because the man who has loan
ed money has a prior claim. z
Now. instead OF taking the net re-
suit OF the poor year. let US take the
1913 figure OF se33 ,3s5. .iS2. This should
be reduced approximately t13. .200. 900. be-
cause taxes were that much larger in
M isld ~ This leaves little more than
Out of this must come miscellaneous
charges (other than interest, amortiza-
tion, etc.l, which, according TO the In
terstate Commerce Commission, amount
ed In 1914 to ss9.ns. .t@t Then comes she
debt charge OF $5S2 .00o. 900. leaving a bal
ance OF less than z7S.3O0.Id0.
Dividend Possibilities.
This amount theoretically would be
"availa BILE" for dividends. but every
one knows that the bonds of this or
any other system would not be in good
favor II all net profits were distrib-
uted to stockholders
Part of the s27s. 10000 must be appro-
priated for additions and betterments
New capital should not be sought for
all work of expansion.
The actual Appropriation from earn
ings for additions and betterments in
1913 was $65. 81. .055. but In 1914, when
earnings were poor, the amount was
little more than 12S,000.000.
Actually more than SIS. 10000 should
be spent for this purpose each year
and paid out of earnings, but suppose
that much bc spent and about sl3,000.0 900
be set aside for surplus.
Actual Profits 5000, 100000
This would leave actual profits avail
able for dividends of 800. 900. 900. or just
3IS per cent on the net capital.
With dividends of only l-3 per cent,
Il is obvious new capital could not be
raised through sale OF stock, and the
more bonds you issue under these condi-
tions the smaller will be the slargin
for stock, and IL this margin becomes
too small the bonds themselves are en-
dangered. then new capital cannot be
raised on advantageous terms and the
public suffers because necessary i'm
provements and expansions cannot be
made.
c'The Public's Side OF the Case"
will be the subject of the fourth arti-
Gle In this series. to be published to-
morrow)