They are doing a very fair business and meet their obliga tions to the trade with promptness, hence enjoy a liberal credit.
Three houses selling them report as follows: (1) Credit up to $4,000. Now owe us $2,800, not due. Always pay promptly. Usually discount their bills.
. (2) Check their orders up to $3,000 in sixty days. Pay promptly; take discounts. Now owe $2,200, not due.
(3) Have sold them for years. Last year sold $9,000. At present owe us a little over $2,000, which is not yet due. Invariably prompt ; nearly always discount.
12. Analysis.—This case presents no great diffi culty, even tho some desirable information is lacking. The information regarding business ability is dis tinctly favorable. These brothers are both experi enced men in their line and evidently understand all the technical features of their business. That they also possess sufficient financial ability, appears from the fact that they are always able to take care of their maturing obligations. Considering the amount of their capital, their outstandings appear small, in dicating that they give credit with caution and that they are good collectors. This enables them to take advantage of cash discounts.
The capital of the firm is also satisfactory. It is more than probable that it represents the savings of years, accumulated by the brothers with a view to starting a business of their own. If this is the case they are doubtless accustomed to live well within their means and to practise economy and frugality.
We also note that the larger part of the firm's as sets are "quick," which makes them easily available for the satisfaction of creditors in case of unexpected difficulties.
We should like to know the amount of annual sales, as that would show us how often the partners turn their capital. We assume, in the light of other data, that they turn it about three times a year. We are likewise without information as to the amount of in surance carried, but we must assume that consistently with their conservative and prudent management of the business the matter of insurance has not been over looked.
The integrity of the partners can be judged by .their reputation, which. is shown to be favorable both be fore entering business on their own account and after. Their industry, economy and promptness are well attested.
Under the circumstances we shall be justified in extending a line of credit in keeping with their rat ing, which is E-2 (Dun) and which gives them an es timated financial strength of from $20,000 to $33,000, and shows their credit to be "high." (See key to Dun ratings on Page 102.) 13. Report on a grocery business.—The following report is one that was furnished by R. G. Dun and represents a situation that is by no means unusual: It is not believed that his stock will exceed $1,900, and his book accounts are also thought to be fully twenty-five per cent larger than the collectable amount.
Other items in his statement are believed to be about right, and it is felt that his net worth is not far from $2,000. His business seems to be in fair condition and he is believed to be making some headway. His account is generally con sidered satisfactory, tho investigation shows him to be slow with several creditors. Three principal creditors report as follows: (1) Credit up to $750 at thirty days. Owes now $550, of which $150 is nearly thirty days past due.
. (2) Check orders up to $500 at thirty days. Owes $400, $125 is ten days overdue.
(3) Extend a line of about $700 at thirty days' time. At this time owes nearly $600, of which $200 is past due.
14. Analysis.—Here is a case of the kind which credit men often meet and upon which many arc will ing to take a chance. The business appears to be rapidly on the increase and the proprietor is reported attentive to his business interests. We also notice that he is obtaining credit without difficulty from other houses. We shall not forget, however, that an in creased volume of sales does not in itself guarantee the prompt payment of bills. Nor shall we feel com pelled to give credit just because other houses do so. Let us examine this case in our usual way.
Mr. Roberts is credited by the reporter with pos sessing only fair ability, which is merely another way of saying that he is an inferior business manager. This assumption appears also to be well supported by his own statements.
Too large a share of his capital is in the form of book accounts, showing that he extends credit ac commodation with a very free hand. As we have seen, the liquid value of book accounts in the grocery business is only about forty per cent. It follows that in case of failure his assets would shrink very ma terially.
His merchandise debts are larger than his stock on hand, and he is evidently seeking to do a larger business than his capital justifies. He is top-heavy, and may easily blow over in a business "squall." His equity in the residence property may, for our pur pose, be left out of consideration altogether.
To sum up, then, our applicant is weak on business ability, his capital is insufficient for his business needs, and as for his character we have not sufficient knowl edge to feel assured. If he is slow with other credi tors, it is likely he also will be slow with us, and we shall do well to bear in mind that while slow pay ments do not necessarily imply that failure is im pending, they always precede such an event. Every thing considered, we are not justified in checking this order.