Following are the percentages of working capital to total capital as shown in recently published balance sheets of a considerable number of prominent American industrial corporations, which have been selected practically at random. For convenience, these companies are divided, for the present purpose, into three groups: those having a proportion of working capital below 15% of total capital being placed in the first group; those having between 15 and 35% in the second group and those having above 35% in the third group.

Percentage Of Working Capital To Total Capital

I

Mexican Petroleum Company.........

3.5%

California Petroleum Company.........

3.9%

Pittsburg Coal Company...........

8.9%

United Fruit Company............

9 %

Railway Steel Spring Company...........

13 %

II

Sears-Roebuck Company............

I5.1%

United States Steel Corporation.........

16.2%

Pressed Steel Car Company........

18.3%

General Chemical Company........

19 %

New York Air Brake Company.........

21 %

National Lead Company.........

24 %

Lackawanna Steel Company.........

24.4%

Baldwin Locomotive Company..........

28.1% .

Cambria Steel Company...........

33.5%

III

Crex Carpet Company.........

36.8%

Armour and Company........

37 %

American Woolen Company.........

37.4%

American Sugar Refining Company..........

39.6%

American Tobacco Company.........

42.8%

Underwood Typewriter Company..........

43.2%

Central Leather Company..........

48.6%

Swift and Company........

51 %

Rumely Company........

52.6%

Morris and Company.........

53 %

Deere and Company.........

70 %

International Harvester Company.........

81.3%

It is interesting to observe that, with one or two striking-exceptions, companies which are competitive or which do the same general class of business have approximately the same relations of working to total capital. Note, for example, the close correspondence between the California Petroleum Company and the Mexican Petroleum Company. The only other company in the list which is engaged in the extraction of raw materials is the Pittsburg Coal Company, which also has a low percentage. Extractive companies have little need for large inventories, stocks of raw material, or other working assets, except cash and accounts receivable. And their accounts receivable do not run for long periods. The United Fruit Company is, to a large extent, engaged in transportation rather than in producing and selling. As has been previously pointed out, transportation operations do not call for large amounts of working capital.

The various railway equipment companies, including the Railway Steel Spring Company in Group I and the Baldwin Locomotive Company, the New York Air Brake Company, and the Pressed Steel Car Company appearing in Group II, all have a low proportion of working capital compared with other industrial companies. It may be assumed that in railway equipment manufacturing, comparatively little money is tied up in accounts receivable. The railroad companies pay usually in the form of notes which are readily discountable, thus making unnecessary, for reasons that have previously been discussed, a large excess of current assets over current liabilities.

All the steel manufacturing companies, including the Cambria Steel Company, the Lackawanna Steel Company, and the United States Steel, are included in the second division, and all except the Cambria Steel Company have working capital proportions below the average.

In Group III are included a number of important companies which may be subdivided into two classes: those which find it necessary to carry large inventories or materials, goods in process, and finished goods, and those which find it necessary to sell on an instalment or long-term basis, so that accounts receivable are always heavy. The first-mentioned class includes American Sugar Refining Company, American Tobacco Company, American Woolen Company, Central Leather Company, and Crex Carpet Company.

The three agricultural implement companies in this group, International Harvester Company, Rumely Company, and Deere and Company, as well as the Underwood Typewriter Company, belong in the class which sell their products on long terms.

The meat-packing companies - Morris, Swift, and Armour - find it necessary to carry large inventories of live stock and of goods in process.

On the whole, in running over the list that has just been given and in examining large numbers of other industrial balance sheets, it becomes fairly evident that well-managed business enterprises customarily follow standards that are more or less similar and that lead them to establish similar proportions of working to total capital. The exceptional cases, both above and below the normal proportions, are for the most part readily explainable.