Patterns, drawings, dies, etc., may properly be included in the assets, as well as patents, trade-marks, and good-will. In a going concern these may be very valuable. Some treat these items on a liquidation basis and carry them at a nominal sum. Treasury stock is sometimes carried as an asset; it represents stock of the concern which has been issued and repurchased and held in the treasury. In analyzing a statement, treasury stock and unissued stock should be deducted from the assets and from the capital.
The Analysis of Fixed Liabilities The fixed liabilities include the bonded debt and mortgages on real estate. If there is bonded indebtedness the property account should be investigated very closely in order to make it reasonably sure that the bonds are amply protected, for if, in the event of liquidation, the sale of the property should not realize enough to pay off that indebtedness the bondholder would come in for the remainder on an equal footing with the general creditors and weaken the position of the general creditors to just the extent of those claims. Few general merchandising concerns which are floating their paper in the open market have mortgage indebted ness, as it is quite generally held that this interferes to some extent with the sale of their notes or even impairs their credit standing. The bonded indebtedness is just a step farther, the bonds being the evidence of indebtedness supported by mortgage, in order to broaden their market. This does not apply to debenture bonds, which are an unsecured obligation of the company.
The ratio of the capitalization to the value of the plant varies with the line of business, the fixed plant and equipment of a manufacturer usually being very large compared with those of a jobber. Assuming that the whole industry is not overcapitalized, the ratio of capital to plant becomes useful in determining the proper capitalization of any concern in that industry.
Ancillary Items The statistical items outside of the regular balance sheet which the credit man must have before him are its total annual sales, turnover, net profits, dividends paid, and the amount of insurance carried on its plant and merchandise. The annual
sales and terms of sale will indicate whether the concern's capital is being properly employed.
A company's net profits, if conditions of business in its line are not poor, should be sufficient to render a reasonable return to its stockholders, provide for depreciation, etc., and add something to its surplus each year. Dividends should be paid out of net profits alone, and payment of dividends not earned should be investigated. Dividends paid out of a large accumulated surplus are warrantable, the purpose of the accumulations being to render dividends regular, but if repeated for some consecutive years or if paid out of surplus when the amount of surplus does not warrant it, such practice arouses suspicion of the manner in which the company is managed.
Insurance is frequently taken out under a blanket policy. This is done in cases where a company occupies a number of buildings, and under such a policy the buildings would be covered on the loss payable on any one of them. The policy stipulates, however, that the loss payable on any one building and its con tents shall be limited to a certain amount. Some large wholesale and retail houses insure their building and merchandise separately, due to a difference in rates. A concern should be watched very carefully to see that it exercises proper care in securing itself against loss.
Anyone desiring to do business with a Dank must expect to have an investigation made relative to his standing in the com munity, his integrity, ability, debt-paying record, etc. If the applicant is to be a borrower he must understand that this in vestigation will be far reaching; he may reasonably be asked for full lists of his trade references, a statement of the terms of rela tion to those with whom he has banking connections, and also any questions which the bank desires answered regarding the figures contained in his statement.