New-York tribune., 1920-05-05

sssimatetd they need s544,ooo, 900 add;-
INA; revenues to restore the rnla
IN OF revenues to expenses, and ia
aa9ust their income to 6 per cent a
.aige part OF their net income. he
points out, has been wiped out by ths
Stese increase in the cost of labor and
material. ''' "''o
Shrinkage in Revenues
The net income of the Eastern roads
Mr.. Willard shows, has shrunk 90 nav
cent since 1916 '''
while the expense basis since 1918
mas been increased 1910 per cent. ths
revenue basis during the same ner;od
mas been increased but 36.37 per cent !"
says Mr.. Wizards statement. "As a
result the ratio OF operating expenses
20 operating revenues, which in 1916
Nas o'S2 per cent, becomes 99.73 per
cehI wnen revenues and expenses are
restated on existing cost and revenue
basis. A comparison of these results
with the actual results for 1919 as
audited, indicates that the increase in
passenger earnings and economies in
operation incident to increased train
load, direction of traffic, ETC., made nos
sibie largely by unusual conditions. re-
suiting from the war, including the de-
mobilization Of the military forces
enabled the railroad administration to
offset to substantial degree the in
creased basis of expense, resulting in
an operating ratio of S7.87 per cent
for the year 1919, as audited. In.
creased passenger business handled
with less train mileage might account
for one-half of this reduction.
Taking the adjusted figures for the
year ended December 81, 1919. the re-
suits shown indicate that under the
changed conditions the operating ratio
resulting from the Identical business
would be 91.5S per cent To reduce
this to 70 per cent ratio, with the
same volume of business, would re-
qulre an addition to revenue of some
S544,o00,000.
Ihe average ratio Of operating ex-
penses to operating revenues of these
carriers for the nine years previous to
and including 1916, was 704 per cent.
and it would seem that rates ought
now be so adjusted that the same
standard of operating efficiency that OBJ
tanned during that period would now
produce approximately the same oper-
ating ratio. 1t is also noted that the
operating ratio during the three-year
test period averaged 69.5 per cent"
Return on Investment
The transportation act provides for
q return of 51a to per cent on the
value of the railroads. Mr. Willard
says that the property investment of
the Eastern carriers is $9.36S,698 600.
on which per cent would amount to
s562,121, 900. But the earnings of the
year ending October 81, 1919, with ad-
Justments to present costs, show a net
income of only S1S,008,O0o, leaving q
deficit Of s544 ,113,000 to be made up.
This amount equals S043 per cent on
freight revenues
The difficulties facing the carriers in
providing for their capital necessities
at time Of worldwide financial strain |
are outlined by Mr.. Willard as follows:
The carriers must now reassume |
the burdens and risks Of operation in
period of uncertain conditions affecting !
business generally. The demands for
additional facilities and extensions |
The cost Of new capital is more than !
per cent per annum even to those rail- |
road companies whose credit is Of the |
best
THE government Victory loan bonds !
are currently selling on basis of re-
turn in excess of per cent. New in |
dustrial issues, with which railroad |
financing must compete, are offering |
from 71a per cent to per
cent, in addition to liberal commissions
for their sale and distribution, and
bonds saf substantial rail
roads may be bought on basis to yield
: per cent and in some instances in
excess of per cent. Further, the
European markets, heretofore available
for American railroad issues, are now
closed, and are, in fact, absorbing our
surplus funds, and this applies not only
to Europe. bu5 to practically the whole
world. including Japan and the East.
"ln 1920 and 1921 from 5000 600 900 to
$3.50, 100000 per annum of maturing OBJ
legations of the Eastern carriers, now
bearing low rates of interest (some as
low as 31a per cent? must be taken
care of, and in such refnancing the
railroads must secure funds on the
basis of the current cost of capital"