Omaha daily bee., 1921-07-26
6,OOO,OOO,OOO In
Rail Securities
HeldbyPublic
Roads, However, Have Put
Into Properties $2O,OOO,.
100000 Out of Earnings
As Wise Investment.
BY HOLLAND.

~ By HOLLAND.
Elisha Lee, vice president of the
= Pennsylvania Railroad company, esti-
mates that the railroads OF the
United States now have in the hands
OF the public $l6,000,000,0O0, or in
.other words, the public has invested
AISLE, ,000,000,000 in American railway
4 properties. 1t is no wonder, there
y fore, that the public ieels vitally in
= terested in the railway situation and
earnestly hopes that the recent
undertaking to fund some of the rail-
road obligations to the government
will be successful
Nine and one-half billions of the
total capitalization OF the American
railroads are represented by bonds.
Six and one-half billions are repre-
sented by capital stock. The owners
OF the American railroads have there
fore nearly $7,000,000,000 of equity.
But this is not all. The railways of
the United States have, out of their
own earnings and fresh capital, in
vested approximately $20,000000,
IN these properties. This money was
taken out of earnings before dividend
payments were made. 1t was used
for equipment, for improvements
and for the enlarging of terminal ia
cilites. Therefore, the railroads of
the United States as a whole have,
out of earnings, put approximately
$4,000,000,000 more into the proper
ties than the combined bond and
stock capitalization.
= Wise Investment.
The ablest railway constructive forces
in the United States always looked upon
]. as wise Investment OF some part of
the earnings. II they were turned back
into the property. In the early days of
railroad development when Commodore
Vanderbilt was recognized as the leader.
ne set the example of putting some part
Of the earnings back into the properties.
This was the policy followed by President
Thompson OF the Pennsylvania. He was
the first to equip railroad in the United
States with steel rails and 1t has always
been the assumption that payment for
these rails were taken out OF earnings.
e. H. Hartman always favored putting
'ome part of the earnings back into the
railroad properties. He was assured that
this was wise investment, for it not only
Increased the value of the properties, but
vas certain to increase profitable traffic
The Big Four Railroad company some
Years ago put back into the properties
large slice of the earnings. 1t was wise
Investment and its value was recognised ,
IN tho appreciated market vaue Of the
,tock. Perhaps the best example Of the
uccess which follows wise utilization of
part and at times Of all of the net earn
lrgs was furnished by the Lake Shore
Railroad company. Many millions were
Eliminated as far as possible and long
langents secured. The road bed became
model. And SO great was the improve
nent In this railroad property due largely
IN he nj of
critics that in the early years OF the pres
ent century it was found possible TO
finance the securities on the basis OF 3h
9er cent. "
The railroads of the United States |
therefore at the time the government IN
war days took them over, represented an
expenditure Of $4,000 100000 in improv-
ing and as far possible perfecting the
various systems. But the bonded indebt-
edness Of the American railroads as q I
Therefore the railways of the United |
States are mortgagsd, for only one laif OF |
the total cost of improvement. of course
1t should be borne in mind that some OF
the funds obtained by the sale OF ponds
And stock also represent railroad improve.
/, 'ment. Mr.. Lee calls attention TO the iaet
that 1t is rather a coincidence that ing
amount of the funded debt and the pook
cost of the American railroads CORE
spends with the estimate made py tnos1
who lend money upon mortgage or reaI
first mortgage.
Is There Watered Stock?
Some years ago a statement, afterwards
reputed. was made publicly that a. large
amount of the capital stock of the SOUTH
ern Pacific Railroad company was pure
water. So also charges have been maoe
that other railroad stock was waterea.
One of the first of these accusations was
hurled at Commodore Vanderbilt at tne
time when he caused stock dlVlaehu,
equivalent to the capital stock as that
was before the dividend, to be declared
So it was frequently said that New YORK
Central system contained at least eo pef
cont Of water in its capital stock
But excellent demonstration was maus MAJ
Of the reasons why a dividend or TINS |
Kind was declared. The New York Cen
irai system had been greatly improved:
MANY millions had been taken out VI
earnings in order to perfect the properly.
Commodore Vanderbilt for long inns
would not permit any bonds to be issued.
He thought that the earnings would oe
sufficient to provide for improvement
snd nayment Of a reasonable dividend
II is the impression Of railway man
ayers that when the physical valuation oi
+he railway properties OF the S 60,
states is completed, the Interstate Coh;;t
r,,orcs commission will have oe1ore ~
f;sures which will show that on the wnole
~ rai,ways of the United states are IN
nnssession of properties whose Value 10
Ear in excess of their capitalization
Kansas City Live Stock.
,, ri+v JuIy 25-(U S. Bureau |