4. Fixtures, machinery, etc.—The realizable value of assets placed under this heading is not easily de termined apart from an investigation of the several items from which they are made up. As a rule, such values must be heavily discounted.
The accurate valuation of good-will, patents and trade-marks is always extremely difficult and often wholly impossible. For that reason the merchandise creditor will not ordinarily consider them in his esti mate of a customer's assets.
5. Owing for merchandise on open account.—This item must be viewed in its relation to the volume of sales and to accounts receivable. It should also be considered in connection with bills payable. If the last item is large, accounts payable should be small, on the assumption that the proceeds from bills pay able have been used for discounting merchandise bills.
Where this item is separated into amounts past due and amounts not yet due, a further insight into the financial methods of the concern is afforded.
6. Owing to banks and to relatives.—The items showing debts to banks and to relatives and friends not only show how much is owing, but indicate the dealer's ability to borrow in case of necessity. Pos sibly the banks have already been used to the limit of their willingness.
7. Outside assets.—When outside assets consist wholly or largely of real estate, they had better not be considered as a basis for merchandise credit. At best they are slow assets and difficult to realize upon in case of forced liquidation. Frequently such as sets are hedged about with conditions that make them wholly unavailable for merchandise creditors. While they are not to be thrown out as of no value, since they sometimes remain when other assets have disap peared, they should not ordinarily be included in an estimate of a merchant's title to commercial credit.
This item, however, affords an insight into the nature and extent of the merchant's investments. If these investments are of such nature as to demand the owner's active supervision, they may seriously in terfere with his giving proper attention to his regu lar business, just as they may prove a drain upon his funds and thereby hamper—possibly even cripple— the business for which he is seeking credit. If the
outside assets appear large an explanation should be asked.
8. Analysis of agency a former ter we noted that credit title is determined by the presence of business ability, financial strength and moral integrity, or the "Three C's"—capacity, capital and character. We shall now examine in the light of these three factors, a few credit reports of the kind that come to credit men's desks in the ordinary course of business.
9. Report on a 'manufacturing follow ing is a Dun report on a manufacturing firm and con tains several items of importance in connection with the determination of existing credit title: The business was started by the above partners anti one Fred Carlson, some six years ago, and upon Carlson's death, which occurred a year or two afterward, Brown and Harris acquired his interest for $2,700 cash, paid to his widow.
The remaining partners have worked in the same line of business for a number of years, both here and in Philadel phia. They are both middle-aged; Brown is married and Harris is a widower. Enjoy a fair reputation and are con sidered to possess only fair business capacity.
Repeated requests for a statement of their financial con dition have been ignored. Are not inclined to talk much about their affairs.
The former owners of the plant failed in business, and their predecessor, who was the builder of the plant, is said to have lost money on it. The present owners bought the plant for $12,500. Appear to be doing a fair business, tho it is generally believed that they are not making sub stantial headway. The shop is running full time and em ploys from twelve to eighteen hands. Carries a fair stock of lumber and other supplies. Brown owns his residence, which he values at $5,500 and which is mortgaged for $3,000.
Harris' own business property is valued at $8,000, mort gaged for $5,200.
One supply house of whom inquiry was made, reports that bills are paid with a fair degree of promptness. Another reports them slow pay, altho it is willing to sell them in moderate amounts. Believes they are not making sufficient margin of profit on their product.