The Washington herald., 1921-05-26
The nobly born must nobly meet his fate
-Euripides.
Washington Street Railways.
XVII. CAPITALIZATION.

NY corporation whose volume of bond issues
~ exceeds its stock issues is not in desirable
financial condition. 1t probably not by
chance that the Capital Traction company charter
provides that its bonds shall equal only half the
total of its stock. This is that the stock
represents actual investmen that it has cash value
or that it is not merely cloak to cover promotion
charges. 1t a wise provision.
With the interest carrying charges brought to
such low level, there is reasonable assurance of
dividends for stock When the bond burden is
comparatively light, it does not take all the net
operative earnings to pay interest. The stockhold
therefore can have confidence in a balance
which will go to them, while the bondholders know
the company will not have to deteriorate property
value to pay interest, to have something left for
the stockholders. AS result such corporation
finds future financing easy for expansion legiti-
mate Improvements. 1t sell additional stock
and sell additional bonds.
But when the bond issues equal or exceed the
stock issues there is very different situation The
w. R. & E. insists that it must have such a rate
OF fares, through zonng, transfers fat rate,
all of these, that it show earnings of per cent
m order to finance improvements. By this per
cnt it means that amount the fixed fair valua-
ton above in addition to its interest charge. By
improvements it does not mean extensions, but
what should amount almost to rebuilding of certain
of its suburban lines, and repairs elsewhere
If it had used the S3,5oo,ooo paid as dividends
on common stock, in this other way, it would not
now have needed to borrow. For five successive
years it paid average of $4,000 as common
stock dividends, that should have gone into its
properties and road bed. For another six years it
paid out in the same way, less sums ranging from
$4,000 to S32sooo that belonged to better service
1t is reaping what it sowed, lying in bed of
its making.
Moreover, its bonds, sI7,soo,ooo exceeded its
stock, $I5ooo,ooo, by S25oo,ooo. No hnsncier will
consider this safe desirable condition Its in
terest charge alone is S7ooooo which has to
of earnings before the stockholders can get
dollar. Again this is not condition which admits
of further stock issues. Its bonds exceed its fair
valuation basis for fares by $I,soo,ooo in
other words it is bonded for than it is worth
earning proposition.
If it made what it says the people owe it for
its services and needs to finance improved service
it would have to have a railroad net operating
earnings of over S2ooo,ooo, or deductng its profit
from the Potomac Electric company around ST ,5oo,
600 which would be close per cent of its fair
valuation. Just interest on its bonds it has to
and pay nearly per cent on its fair valuation
AS railway at the present high fare, it last year
earned something less than per cent in excess of
this or total OF 50 per cent its valuation for
fares Including its P E. P. dividend and interest
payment, it actually received net over operating
costs, nearly per cent last year.
This would seem to show that the commissions
valuation not only fair as physical value, but
that as a business proposition operated as rail-
road distnctfrom the P E. P, it would be rather
high purchasing price. At that price, however, the
stockholders would have left their property the
p E P. which would be capable of carrying the
w. R & E per cent preferred stock, with some
thing left over for the stock. If, therefore,
the w. R & E. could find any one who would take
its railroad properties at near the commissions
valuation it might do well to close the sale quick