Securities issued by manufacturing companies. There has, perhaps, been no class of securities which has attracted greater attention the last few years than "industrials," so-called, and there is no class, perhaps, less established in the minds of the public as to its permanent value, as is evidenced by the fact that stocks and bonds of such corporations can be purchased at prices to pay very large returns upon the money.

During the great World war, when the earnings of our industrials increased enormously, an unusual opportunity arose for new financing in the form of "convertible " issues. Based upon prospective values for the common stocks, into which the senior issues were made convertible, the privilege seemed likely to be a valuable one; thus the way for necessary financing was made the easier.

The larger "industrials" result from the consolidation of several concerns which had previously been in the same line of manufacturing; theoretically, so that the business of the whole may be administered to the best advantage of all; deliverance from competitive sacrifices, with the large profits which concentrated management assures. Bonds have not as yet been issued upon "industrial" properties, in proportion to their total valuation,to such an extent as upon railways. This, perhaps, arises from the uncertainty as to the foreclosure value of an "industrial" property. There is no great value attached to such a plant for right of way or for franchise, as in the case of a railway, nor do such plants, as a rule, occupy strategic positions which give them great added value. The value of these concerns depends very largely upon their successful conduct, and, in case of the sale at foreclosure of a manufacturing plant, it frequently brings but a small price because its buildings and machinery have a comparatively, low value unless in successful operation.

The assets of the new "industrials," against which stocks and bonds may be issued, should be carefully considered. The plant and machinery may be almost valueless for any other purpose. Good-will and patents are also often reckoned as assets, but such have very little value except so long as the corporation is prosperous. The good-will of a bankrupt company would sell for but very little money at foreclosure. One corporation has eliminated the good-will from its accounts, thereby reducing its total assets about $5,000,000. (See "Good-will.")

The "industrials" are very largely speculative investments, and until they have been through a long period of business depression, as have already our railroads, it will be impossible to determine their permanent investment value. They yield more than railroad securities as the risk is greater. The hard times of the middle "nineties" resulted in a large percentage of the railway mileage of this country going into the hands of receivers and through a process of reorganization, which, in most cases, was radical enough, when followed by the period of expansion and industrial activity, to place them upon a permanent footing. The newer "industrials" must, therefore, go through a similar period before they can be classed as seasoned investments. Those that weather such storms in financial safety may then, as a class, be selected as good investments and should, after such a period, sell at prices commensurate with that belief.

It will be seen that the real value of an "industrial" very largely depends upon the permanent successful conduct of its business and a definite understanding of its earning capacity. The class of commodities produced deserves serious consideration; that is, the value of such a product to the community at large and the necessity for the continued operation of the plant, and to what extent, either through control of raw materials, or otherwise, the company can control its particular line of business.

To go into the matter further requires a knowledge of whether or not a reduction of expenses has been accomplished by consolidation, and an increase of earnings effected for a like reason. Is the company carrying a " floating indebtedness"; and, if so, the reason therefor? Are proper charges being made for depreciation and altogether a conservative system of bookkeeping being pursued so that the dividends are warranted? It is very easy to be misled by the manner in which the books of any corporation are kept, but the keeping of the books of an industrial concern offers especial opportunities for deceiving the public. Corporations of this kind should not, on the average, from year to year, divide among their stockholders more than about 50 to 70% of the net earnings; the balance going into permanent improvements, or reserved as surplus.

The dividend record should be studied as far back as possible. A good record in this way is an argument in favour of bond security. In considering common stocks beware of "overcapitalization."

The fact, also, that orders are in hand for the full capacity of the plant for months ahead is not necessarily conclusive, for past experience has shown that in times of sudden widespread financial and business disaster, consumers have had no scruples about cancelling contracts, and it has not in the past proved worth the while to try to enforce the same to any great extent.

During seasons of great prosperity, such as began with the World war, already referred to, many new " industrials" come into prominence. The conservative investor should test them out through a period of depression before placing too much faith in a continuance of anything like the favourable earnings of the moment; but this rule need not apply to all, as many industrials have shown even larger earnings since the World War.

The preferred stock of new corporations has usually equalled the value of the property above the bonds, plus the necessary working capital, leaving the common stock to obtain its value from economies in operation expected to result from centralized management.

For many reasons "industrial" shares and bonds are more subject to manipulation than most railway securities.

In general, stocks of industrial corporations may be said to be business men's risks. After making a careful study of all the factors, management, earning power, assets, general trend of the market, etc., the investor should invest a portion of his funds in this class of securities.