Industrial Bonds as an Investment

Some five years ago, in an article that was later published in the Yale Review, I went into a rather thorough discussion of the &dquo;industrial bond.&dquo;In that paper I proved-to my own satisfaction, at least-that the industrial bond was a well-secured and attractive investment, and that the earning power behind it was greater than that behind the railroad or other corporation bond.Theoretically I still believe this to be true, and I shall presently present com- parative figures to attest to the accuracy of this belief.But, looking at the matter from the viewpoint of the average investor-and the average investor has no large sums to invest and is not well informed in financial matters-the matter presents itself in a different aspect.The first question the average investor asks about a bond is, &dquo;Is it safe?&dquo;The answer to this question in the case of the indus- trial bond involves more considerations than perhaps any other form of security.The earning power or the ability to pay the interest and, in due course of time, the principal must be considered in the industrial as well as in any other form of bond.But having satis- fied himself as to this feature in the municipal bond, in the railroad bond and, in general, in the public utility bond, the investor need go no further.He can then buy the bond without misgivings.But in considering the purchase of an industrial bond the problem is dif- ferent.The company issuing the bonds may be earning each year two or three times its fixed charges, that is, it may be making enough money to pay all the expenses of operation and management, the taxes, and insurance, enough to write off bad and doubtful accounts, to set aside a generous amount for depreciation, and to have left a balance sufficient to pay interest on its bonds two or even three times over.Such a showing should surely satisfy the most cautious investor, could he be assured of the continued prosperity of the company, and be certain of a continued demand for its products.But wait.May not some other industrial company discover a better process for manufacturing these same goods, or enjoy some advantage in econo

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• Bibliography On Securities and Stock Exchanges

  Open Access•S S Huebner•The Annals of the American…•1910

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