New-York tribune., 1922-12-03
BY Robert s. Dana

P.nnsylvnnia and Norfolk a Western
may be cited as good examples.
This condition Ia also apparent N
some Of the recently rsorganiEed roads
Of which Pers Marquette is perhaps IN.
most notable example. Here Ia . road
that, prior 10 rs Reorganization ~
1917. was unable 20 earn its hxet
charges. But when, through reoTgani'
Sation. its funded debt vaa reduced q
tho extent OF 81 per cent, the earning
power Of the road began 70 grow
rapidly.
OF course, when a road 10 IN receiver
ship, the primary object OF the receiver
ls to build up the physieal condition o.
the property 40 quickly ~ possible ~
order 20 place 10 In . favorable position
% develop its latent earning capacity
and 20 eompsts the moro successfully
WITH other roads. The payment OF tn'
tersss or funded obligations Is . sec
ondary consideration. Consequently IN
such cases the earnings are continually
plored back into the property, regard
less OF what the interest requirements
may be. BE-. once the road ls back or
ltg feet With = new capital structure
In which funded debt has been reduced
20 reasonable proportions. there Is usu-
ally sufficient surplus earning power
20 enable the company 10 take care OF
A certain proportion OF its capital I'M
provomen.s without resorting 70 rev
financing. and In this way itf earning
power Is stabilized and strengthened
and ths equities Of its security hold
ers increased.
Two prominent examples where An
overrapld expansion In funded debt
without eompsnsating increase In earn
ings ultimately resulted In disastrous
conseausnces for the stoekholders may
be found In the 81. Paul and NeW
Haven episodes. Jn the former IN
stAnee the extension Of the line some
two thousand miles westward 70 the
Pacific Coas. did not produce an ade-
oua.S return or the money invested.
resulting In . eonstansIy diminishing
margin Of safety and fnally In the dis
continuance OF all dividend payments.
In the latter instance ths acquisition OF
competing trolley and steamship
properties at greatly Inflated prices
laid such heavy burden on
the company IN the way OF addi-
sional Gxsd charges that its earn
Ing power was unable TO stand up
under the strain, and II hnally was
obliged TO discontinue diYidends alto
gsshsr.
Not all the roads, however, with an
oyerlsree funded debt In comparison 70
capital stock arc 10 be elassed among
the weaker lines. Louisville 4 NASH
VILE, for example, Is rather top heavy
In this regpeet, but Is nevertheless one
Of the soundest Of our railroads. The
reason lies IN the fact that its funded
debt is how In proportion TO its normal
sarnlng power, whieA permits che ae-
cumulation Of sizeahle surpiuses after
che payment OF Interest and diyidends.
To illustrate this point IL may be mem
toned that Loulsyille 4 NAshville's
funded debt ls only about Ia times its
indicated gross earnings for the cur
rent year, while both 81. Paul and New
Haven have funded debts Aggregating
nearly three times their indicated gross
earnings FOR 1922.
Property Value
The second factor 20 receive atten-
tion was property value. This 10 4
factor Of importance In more ways than
one. Under the valuation act, effective
March 1, 1918, the Interstate CommeTee
Commission vas charged, among other
thinTs, with the duty o. yaluing each
piece OF property ovnsS and used by
each common carrier. During the
nearly nine years that have intervenod
the commission has been proceeding
With the work, and even now, after the
lapse OF all this time, the work II only
partially completed, and has cost both
the railroads and the government very
large sums I'm the aggregate.
The valuation data that have so faT
become matter OF record give plain
indication that the railroads, as .
whole, are not oyercapitalized, and Il
the Agures when completed and pub
llshed can put a anal quietus upon the
loose talk 20 Frequently heard Of late
ysars about the water IN railroad So
eurities. the valuation work viii have
been well worth the time and money
spent. a.
Interstnte Commerce Commission with
the duty Of so establishing and adjust
Inc rates that the carriers as 4 whole,
ar IA whole IN designated rate
srouos. will be able, under good man.
agement. 20 earn an aegrsgA'e amhua'
net operating income that shaH pe
equal, as nearly az may be, 20 = ,sil
return on the aggregate Vaius OF me
railway property used IN the service
Of transportation.
The valuation figures used In these
analyses are purely estimates, as 90
far only tentative reports nave eeen
submitted by the commission, and OF
these only few apply 70 the more
important roads. They are also, IN
most cases, OF a date several years
prior 20 the present time and, there
fore. rive no confederation 20 the sumt
expended on capital improvements IN
These estimates, however, are not
mere euesswork. They are the result
OF a most careful and painstaking in
vestieatlon on the part Of trained spe'
eIallsts. who have consulted all she
data available and who have given due
confederation 70 the values added e
property during recent years. IL 70
not ciair.ed that the results thus oo-
tanned are exact. That would require
knowledge Of facts and factors no'
vet determined By the commission ~.
self. And even the final hndings ol
the commission are subject 70 review
and amendment on representation ..
the roads. We believe, however. tnns
they are as nearly accurate 80 any
results Il ls possible 70 obtain ~ the
present time under existing conditions.
Limit Of space has preysnt:d our
apoiylne these estimates OF Valuation
ilrectly 10 earnings TO show which Of
the roads are earning above . fair re-