Evening star., 1925-11-15

made In the form OF reOuCeQ uSnllNS
rates effective January l next.
Purchasers of the issue at these out
of-town points are acting on the broad
hypothesis that any we'll managed
public utility stock is worth 10 times
its earning power, using other similar
companies as a standard. This earn
ing power of the security under dis
cussion is estimated, variously by the
different members of the pool, through
the medium Of private calculations,
from minimum of 38 per cent to
maximum Of As per cent. after deduc-
ton for fixed charges and depreciation.
Considerable momentum Is lent the
selling movement, particularly in New
York City, where a report has been
broadcast that another special divi-
dend, possibly 20 or 26 per cent, will
be declared on common shares abou'
January 1 next.
Clients of the group now engaged
In distributing the security are being
made fully acquainted with what are
referred to as hidden" earnings or
important adjustments which do not
appear in the published earnings of
the Washington Railway and Electric
Co. proper.
Attention is called to the fact that
the carrier has failed to take advan-
tage of the entire earning power of
its subsidiary, the Potomac Electric
Power Co., dividends drawn from the
latter company having increased only
slightly as compared with the rapid
increase in it's earnings in recent
years-all of which is true. More
over, those selling the stock assert,
the company fails to take into ac-
count the very generous allowances
for depreciation made by both COM
panies, due both to the peculiar ac-
counting rules of the Public Utilities
Commission here and certain stand
ards set up in connection with bond
financing. 1t is charged by them that
the amount set up for depreciation
exceeds a fair normal amount as tes-
titled by the rapid growth of reserves,
that of the Potomac Electric Power
Co. being now equal to nearly rs per
cent of it's common stock. All Of
these factors help to obscure the high
merit back of the issue, it is said.
Depreciation Scales Differ.
Depreciation accrued by the Wash
ington Railway and Electric Com
pany is on a straight line basis, while
Potomac Electric Power depreciation
Is computed on a sliding scale fixed
by court order. For instance, on tho
depreciation reserve of the Potomac
Electric Power Company as of De-
cember 81, last. approximately 81 ,00O,
600 interest will be accrued on 4
per cent basis and as an accretion to
the reserve, lessening the amount of
depreciation to be included as an ex-
pense of operation. Depreciation is
based upon a modified straight line
basis, from 23 per cent on the value
of the company when the deprecia-
ton reserve is below Is per cent of
total valuation to a smaller per cent,
which shall be such as to not make
the total of depreciation reserve in
excess of 20 per cent OF the value of
the company's plant.
At first glance the high estimated
return of As per cent on the common
shares of Washington Railway and
Electric Co. would seem inconceivable,
but a Boston house readily proves by
hard, cold statistics that such Is not
the case. This house points out that
the Public Utility Commission here
allows a return of 73 per cent on it's
valuation of the power plant, placed
last January at S32 100000. To this
figure is added 81 400, 900 for improve
ments and additions, alleged, to be
added up to October / of this year,
making a total plant account of $685.
100000. Estimating the working capi-
tai of the plant at s1,0o0,000 (Which
is not allowed by the Public Utilities
Commission, but is immaterial in the
tabulation), making the total structure
valued at $34 100000, the return as
allowed by the Public Utilities Com
mission would be S2,620.000, or ~
per cent of the total valuation. De-
Quoting from this amount fixed
charges of s832,000. consisting OF
$4,000 of bond interest on s11. .300,-
600 Of bonded indebtedness and $780,
600 annually in dividend on the re-
cent issue of new 6 per cent stock,
there would remain net earnings of
$1,7SS,000 available for the 10000
shares of electric stock (all of which
is held by the Washington Railway
and Electric Coz, or approximately
$40 per share after depreciation.
There are $1,000 shares of Wash
Ington Railway and Electric common
which would have an equivalent earn
ing rate of about 27 per cent. That
the power company will make more
than it's allowable return is attested
by w. F. Ham. president, who,
few days ago. intimated there would
be a voluntary reduction Of light
charges next year sufficient to use UP
at least 100000 constituting excess
earnings.
Esteem Is Revealed.
The best illustration Of the high
regard in which the stock is held in
New England is found in the follow
ing copyrighted article. appearing in
the Boston Transcript on Wednesday,
November 4, which is substantially
the selling argument advanced by the
majority members Of the syndicate in
distributing the issue. Headed Some
thing About the Potomac Electric"
the article reads:
This company has wonderful rec
ord of earnings, its gross having risen
from $3,602,567 in 1919 to $6,235,947
in 1924, while the balance available