Evening star. [volume] (Washington, D.C.) 1854-1972, 1919-07-27


ing figures 1856 when we believe it is
| perhaps 200? Have we any right to
| issue these figures with perhaps"
| implied? Have they not the right
| to demand correct figures? Some
! thing within 1 per cent of absolute
actual-something. at least. funda-
mentally correct?
Malicious to Overstate Values.
1t is quite obvious that to list I'M
collectable loans at par is to frankly
and maliciously overstate values. To
use par for the present worth Of a
perfectly good and collectable dis
counted note. due three months hence,
is obviously. though not perhaps ma
bankers show such items at par in
all innocence, without a thought of
| malice, in the childlike ignorance that
engenders sympathy. And they claim
they are right-manfully. because
Cured. They, perhaps, have never
rediscounted a receivable
One does not swim before he takes
to water. They are honest, If ig-
norant. So, perhaps, were they who
burned witches. Excuse for igno-
rance, however, is rapidly becoming
! untenable and insufferable, and the
public is demanding intelligent hon
esty.
On the other hand. there are limits
to procedure. beyond which, in order
to obtain super-excellence, it is per-
with ponderous figures. it is fire.
quently easier to arrive at absolute
correctness (within lower percent
age) than in dealing with smaller
figures. One per cent leeway should
not mark the goal of excellence, by
any means, but anything under this
will suffice for. reasonable correctness.
Should Represent Liquidating
Worth.
Now, if we can admit that correct
ness in a banks statement Chico
retically at leasD is necessary, we i'm
ply that combined capital, surplus and
undivided profits Cor profit and loss)
should represent Iquidating values,
or within l per cent thereof Undi-
Vided profits is not a reserve for bad
debts. many bankers to the contrary
Notwithstanding.
Among the assets are some items
which earn nothing: Five per cent
ennd and cash in vault, also bank
premises if used exclusively by the
bank Practically every other asset
has an income changing each day
something caiculable for any state
ment. OF liabilities, more or less bear
III teIcS pay dDte, anu CudnSe 1TOfIl Ody
to day. Taxes and expenses, not pre-
paid, are daily accruing and Riling up
a iability-untangible perhaps, but
existing.
Since discount and interest, as a
rule. to a bank provide the bulk Of
costs). a proper accrual plan is alb
solutely essential to correct statement
figures. In principle, at least, this
is simple:
Every bank has productive assets.
Cash in banks which regularly credit
interest on balances, demand or time
loans and ecurities-sonetimes bonds
loaned-all producing an income on
the basis of discount or interest. Sub
division of such assets may extend to
any nicely desired. but classical
ton as to rates is really essential.
After all, is banker. whose records
do not show this classification, prop
erIy equipped? Should he not know
the volume of 4 per cent, 5 per cent
or per cent bond or notes which he
has bought with the banks money?
| How is it otherwise possible to even
estimate his gross income for any
period?
Information Essential
1t is essential, fundamentally SO. If
one wishes to know the specific and
| separate income on demand. past due
and time loans, on securities with
government, distinguished from mu-
nicipal or industrial, it is merely a
matter of further analysis. but rates
are absolutely fundamental.
Let us respectfully advise against
an attempt to use. for a basis, aver
age rates. Averages are splendid in
cumulative statistics, but average
rates are only obtainable from data
| providing continuous. daily principal
at specific, separate rates.
Classification as to rates, however,
| is not difficult. 1t is data born of
only reasonable management. When
81 per cent securities are purchased.
S Y per cent productive assets are in
| creased: when sold or paid they are
| decreased: If one discounts today
100000 of 6 per cent paper and $780,
| 600 of other per cent paper is col
| lected, one has $4,000 less tonight
! of per cent paper were $1,500,O00,
tonight's will be s1,470.000.
Classification of Assets.
Exactly similar. in principle. with
| current inventories or. for that mat
| ter. with assorted cash in a paying
| teller's till. In one case: Six-penny
nails, 100-pound rails. barrels of ce-
ment-hundreds of varieties of stores
are being purchased and requisitioned
| for construction work. The current
| inventory shows SO much of each re-
| ceived and delivered and tho amount
| on hand.
The paying teller does not sort
fives and tens into one compartment
| of his till or drawer-he separates
| them. Classificatfons OF assets, again.
1t is not difficult for the average bank
to analyze, as to rates, the loans as
made; the register provides rate
column. A ticker should indicate at
maturity the rates at which loans
were taken. 1t is not a monumental
| task.
| Similarly with liabilities. Redis-
| counting at. say, Az per cent, is more
| expensive borrowing than paying 3
| per cent on savings deposits, and one
should know how much he is borrow
| ing at different rates.
Admitting, then, the possibility of
| current analysis Of both interest
bearing assets and liabilities. the
obvious assumption is that we are
daily 1oaning the amount of our earn
ing assets and daily borrowing the
amount of Understanding liabilities
| for one day only tomorrow the
principal of each will change, at least,
in amount-possibly in rates.: Isn't
it about as simple calculation as
we could imagine to calculate one
days interest every day on such loans
and borrowings? Isn't the result the
| actual profit and loss?
An Absurd Proposition.
Isn't 1t perfectly absurd to claim
that, because we collect $1,000 quar-
terly interest on our line OF demand
loans on the last day OF June. We
earned it on that day? Because you