New-York tribune., 1920-11-01
By Harold Stanley, Chairman,
''ce-Presidemt Guaranty Trust Com
aana1aI A..

>"'S''
pdny Of NeW York
The most cursory survey of the re-
cent history of corporate financing re-
veals as its striking characteristic the
{ increasing prominence Of industrial
ISSUES, particularly in the two years
since the armistice.
IN the past railroads and other util
ties have properly had practical mo-
nopoly in the field of long-term bond
financing, and until the last few wears
,he bulk of industrial financing has
Deen with common stock The princi-
pal industrial bond issues had been
'hoSe OF companies with heavy invest
nleits IN plant or raw materials. such
as blg steel, packing or coal companies.
such bonds having frequently been
ISSUED IN part payment for their plants
or their raw material deposits.
during the war a large amount of
the money raised by industrial concerns
was Tor the purpose of rapidly expand
ing plant facilities TO meet wartime de
mands, but since the war has been
chiehy for the purpose of strengthen
ihg current asset position, ,"hecessitated d
DE larger and higher priced inventories
ana the increased amount of goods in
transit. Plant facilities are now in a
10 the country's needs, and new financ-
lng projects for further plant increases
should be carefully weighed and scruti-
nlzed. The carrying of inventories.
however, remains the most usual pur-
pose of industrial issues, and it is with
the TACT constantly in mind that we
must examine more closely the princi
pies governing the form and conditions
Of such offerings.
~. II
Nlth the great increase in industrial
hnanclng in the last few wears short
Term ISSUES have been the usual method
OF appeal to the investment market
whether such issues were in the form
OF notes or of preferred stock with
heavy sinking funds.
Investment Security Requirements
Capable and interested management
and ownership. marketability of assets
+.i,u ti cpermahency OF earning power, in
me lace of actual and notential CONNIE
tltlon and changes in the customs and
requirements of society as whole. are
the PRIME essentials Of an investment
security. 1t is obviously impossible to
lay down any hard and fast rules as to
"hat requirements any given issue Of
industral obligations or preferred
stock should meet in order to qualify
as investment securities.
MS applles not only to the attri-
butes, history and character of the
company as a whole but also to the
covenants and provisions which shonld
be contained in the issue. In tbe last
analysis the purpose Of restrictive coy
enants Is to guard against the dangers
inherent IN speculation and overey-
pahslon and without hampering the
company to limit within reasonable and
proper bounds the issuance Of securi-
'les having prior claims against assets
and earnings. If these two purposes
are Kept IN mind, it is generally not
difflcu!t to determine what should be
the proper covenants and restrictions
for any issue
The true measure Of value of any
company. whether it be an industrial.
public utility or railroad. is Determined
only after careful Weighing of earn
ing power and assets and the charac-
terlstlcS of the items Of which they are
made up. In addition, the question of
management and the industry in which
'ne company is engaged are matters of
vital Importance, and it is safe to saw
that the longer the life of the issue
the more carefully should all these
matters be scrutinized and the more
carefully though not necessarily more
strlngenty) should the provisions of
the issue be drawn.
Offering Circulars
me bankers possibility to the in
vestlng public renders it essential that
suHicient information be given in CON
nectlon with the Offering of an issue of
securities to allow it to be judged bv
the same general consideration that
governed the banker in assuring him.
self of the integrity of the company
ana that dictated the structure Of the
issue. The dependence of the investor