Detroit evening times. (Detroit, Mich) 1921-1958, 1941-09-27


choice of some able assistants.
Henry. on his own, amt any
too smart His 6 per cent recon-
mendation was either very,
=etetetts sefs=ignefaHt- Ia
these troubled times it is more
charitable TO say very ignor-
ant.
INVESTED capital is not the
Il important thing to look at
in examining the performance
of any enterprise
Proof of that is that no finan-
cial expert on securities looks
first at the balance sheet Of a
company in question. He looks
first at its income statement TO
learn what it earns. not in per-
centage of invested capital but
on each share of stock.
In many cases tas in non-par
common stock that has nothing
whatever TO do with invested
capital which usually means
largely bricks. mortar and ma
chinery and which isn't worth
a boot if it can't earn and is in
that case a liability rather than
an asset
Furthermore some companies
railroads for eXample-are
heavily over capitalized, bur-
dened with some assets which
are Just dead horseS-unburied
corpses of dead mistakes. Six
per cent on their invested
capital would be a bonanza for
them.
At the other end Of the list
are companies which depend al
most entirely on good will and
skill which can't properly be
written in their invested eapi-
tai"
CONSIDER a great law firm.
Y Its invested capital is in a
snag of books and group of
Offices. sometimes sumptuous,
but even this is unnecessary. if
il is getting results.
It's invested capital is neg
ligible. If it had TO be re-
Stricted to 6 per cent on that,
its whole value is gone.
Think about chewing gum
companies. Lots of their fac
tories are marvelS Of efficiency,
but their value lies in the in
tangibles of public preference
and confidence A good deal OF
this is true about newspapers
and i444i5ae z 4 zziiff4ia-' -
Here is another vital point:
Most old and long established
industrial companies. the eco
monte empires and the potential
monopoTies, have very large
invested capital relatively un-
burdened with debt.
Most new and up-and-coming
little fellows have much larger
proportions Of debt
Six per cent isn't so bad for
the big guy. 1t is poison and
bankruptcy 10 the little one. He
can't get out of debt at s per
cent.
TIVE REAL murderous bearing
Il of this Morgenthau sugges-
ton is not on the companies
at all. They are mostly corpora
tions 49, artificial persons. The
real bearing IS on the man in
the street who has bought a
few shares of common stock in
this or that company-not for
speculation but for investment
Re did that on the universal
rule of market prices. not on
the tricky and inapplicable rule
of return on invested capital"
but on the long established
principles OF earnings per
share.
Once Mr.. Morgenthau's Sug-
gestion becomes law a large but
Understandable proportion Of the
holdings of investors IN common
stocks would become chan in
the wind.
DERHAPS unconSciously. but
Il nevertheless effectively, al
most every re cent policy -
headlong priorities. proposed
piecemeal price legislation and
now this 6 per cent nonsense
has tended toward an alarm
ing increase of monopoly and
destruction of small enterprise
i'm the United States.
Is il the intention 10 corral
private property into big pieces
because it is easier thus 10 abb
sorb il into the equivalent Of
government ownership?
l think there is no such in
tention. but if there were IT
couldn't be done faster or more
effectively than it is being done.
Distributed nv King Features synd In
Reproduction In whole or in part