Reviews the book "One Hundred Short Problems, in Corporation Finance," by Herbert E. Dougal and Ernst A. Dauer.

A NALYSIS of the capital market in respect to industrial bond and preferred stock financing during the years I933-37 is brought to completion in this article, which deals with the industrial companies that, during the period studied, floated only nonrefunding bonds and preferred stock.1 Balance sheets and income data for 36 such companies are presented. Earlier studies dealt with data for 96 industrial companies making ref undings during the period, some of which also issued nonrefunding securities; this group had assets of 9,756 million dollars in I937, while the group of 36 companies treated in the present paper had assets of 2,652 million dollars. Both classes of companies showed an expansion in assets greater than that for industrial companies as a whole, and this expansion was in part financed by the funds obtained through the publicly offered securities considered here. For the 36 companies issuing nonrefunding securities only, the resulting expansion in preferred stock and funded debt was relatively more rapid than that in assets, so that the proportion of such capitalization to total assets was raised. In the refunding group (which includes some companies making new issues), the proportion of debt to total assets declined, and an absolute shrinkage in preferred stock occurred. Both groups showed a large increase in surplus (relatively more rapid than that in total assets) and some increase in common stock. In both groups, however, common stock capitalization declined in proportion to assets. Since companies that issued only common stock were not included, only a few flotations of common stock issues appear. While nonrefunding issues were sufficiently large to affect the relative capitalization of the companies included, such issues we are dealing here with flotations offered in the open market were in comparatively small volume. The market at the time clearly did not present as advantageous conditions for nonrefunding as for refunding issues. For the latter, the rapid easing in money rates gave opportunity for savings of which financial managers could take advantage. The disturbed political and economic prospects, on the other hand, militated against new investment and expansion of assets through the assumption of new capital involving interest liabilities or preferred dividends. Nevertheless, it is clear from the statistical record that the circumstances which might be urged against the flotation of such securities were in many instances not decisive. Adequate balance sheet and income data are available for a smaller portion of the industrial companies floating only nonrefunding bonds and preferred stocks than for such companies floating refunding issues. The record for the latter is, indeed, almost complete, whereas (with the conspicuous exception of large companies issuing preferred stock) only a portion of the companies floating nonrefunding issues are represented in the corporate accounts summarized in this study. A considerable group of the smaller, less-well-known companies used in the study of rate and other characteristics of the I935-37 issues is not included here, and the sample is clearly biased toward the larger, and probably toward the better-known, companies.

NINETEEN thirty four, like nineteen thirty three, closed with business improving after a temporary recession. Both years showed alternate periods of advance and contraction, but in 1934 business volumes averaged higher and the fluctuations were less violent than in I933, when the dominant influences were the banking crisis and the initiation of a far-reaching program of economic legislation. The business curve of our Index of General Economic Conditions (page 25) reflects the improvement of the first half of I934, the subsequent recession as the effects of the drought and loss of confidence in the business outlook became evident, and the recovery late in the year. Business at the end of I934 was higher than at the beginning, and but little below the best of the year or the extraordinary peak of mid-I933 at the culmination of the movement arising from the nation's leaving the gold standard and the effort of business to act before government regulation became a fact. Speculation at the year end was at almost exactly the same level as a year earlier; it reached a peak last February, declined into the summer, and then advanced to somewhat above the summer's lowest level. Money remained extremely easy during the year, with a slight tendency to decline: a potentially stimulating influence for both speculation and business which failed to produce any great effects for reasons relating primarily to the unsettlement of business opinion during much of the time. Commodity prices rose as the result of increases in agricultural products and foods. The chief legislative measures of the year related to the currency (including silver as well as gold), though the law for control of the stock exchanges, the amendment of the Securities Act, and housing legislation were important. In respect to legislation dealing directly with industry and agriculture, the record of the year is of interest in what it shows regarding the working out of the Administration program rather than for new measures looking toward control or recovery. The Gold Reserve Act at the end of January and the accompanying presidential proclamation brought to a close -so far as I934 was concerned the episode of the depreciation of the dollar which began with the stoppage of gold exports in April I933 and had its most dramatic incident in the gold buying operations in the fall of I933. The Gold Reserve Act of I934 has been discussed from time to time in this REVIEW;1 and for our present purpose it is sufficient to point out that the undervaluation of the dollar in terms of foreign exchange has had the inevitable result of adding substantially to our gold holdings, thus tending to continue the maldistribution of gold among the various countries of the world. Devaluation could not have had such an effect if there had been widespread or persistent lack of confidence in the position of the devalued dollar, but, because it brought to an end the rapid depreciation of our currency, it was viewed in many quarters as a conservative measure. The most disturbing element in the currency situation was the action undertaken in regard to silver. The passage of the Silver Purchase Act before the adjournment of Congress and the nationalization of silver in August both unsettled confidence for a time, while the operations of the Treasury in the silver markets of the world produced serious financial disturbance in China. Concerning the effects of the recovery legislation in its non-monetary aspects, certain conclusions may be safely drawn from the record of the year. Undoubtedly the agricultural program has contributed to improvement in the condition of the farmers, though the severe and destructive drought of I934 meant that it operated under conditions far from normal. It was anticipated that economic improvement in the farming districts, by increasing demand for industrial products, would act favorably upon urban industry, while direct stimulus was to be furnished by the public works program and the measures taken under the National Industrial Recovery Act. These measures did not produce sustained industrial recovery in I934 2 The manufactures index in October was only two points higher than in the preceding November, when the I933 recession

BUSINESS definitely receded during the third quarter of I934, following signs of irregularity which had begun to appear in the preceding three months. Toward the end of the quarter, the recession became less rapid, the business curve of our index chart showing little further decline in September, after a considerable drop in August. The speculation curve at the end of the quarter was considerably lower than at the beginning, though it showed a small recovery in August, and did not revert to the July low in September. Bond prices were weak during most of the quarter, despite the continuance of an abnormally low level of short time money rates. That government measures to stimulate business had failed to bring about a sustained and substantial recovery was clearly demonstrated by the recession of the third quarter. This failure presents two rather different, though not entirely separable, aspects: the first of these relates to the effectiveness of Administration measures, once production and activity had risen to a higher level, to sustain activity at the higher prices made inevitable by higher costs. If there was an increased flow of funds into the hands of consumers because of shorter hours and higher wage rates for labor a development not susceptible of statistical proof it did not result in buying sufficient to maintain the production rates of last spring. The effects of the introduction of codes had, after a year of their operation, pretty well worked themselves out; but at the higher price levels that had been reached readjustment to meet demand was necessary, and this adversely affected both business activity and the prices of industrial products. A second aspect involves the failure to maintain the confidence of business in the whole gamut of governmental measures undertaken by the Administration. Criticism of the Administration's industrial program became insistent during the quarter; there was increasing distrust of past and anticipated monetary measures in part because of the action taken regarding silver; and realization of the adverse budgetary aspects of government spending on public works and of federal provision for relief was heightened by the clearly evident deterioration in the business outlook. The quarter until near its end was thus one of growing apprehension and loss of confidence, despite the fact that the recovery program was in part reorganized. It cannot be doubted that this apprehension exerted an important retarding effect on business activity. Probably its most important effect was the weakness which appeared in the bond market, at a time when further advance was indicated by most factors except the condition of the government finances and the confused monetary situation. In the closing month of the quarter, certain factors which had retarded business in the summer showed improvement. The drought, after inflicting great hardships in the agricultural districts, was broken in September. The nationwide textile strike, which had closed down many mills, was brought to an end, with a consequent increase in operations and employment in that industry. Meanwhile retail trade in part, at least, as the result of government spending had shown unmistakable improvement, despite the curtailment in manufacturing operations. The economic situation abroad continued unsatisfactory. Slowing down of business in countries still on the gold standard was ev'ident, and there occurred a sharp drop in sterling exchange which proved a disturbing element in international markets. Part of this decline was seasonal; but it became large as gold began to leave the United States, since these exports were regarded as signifying the willingness of the United States to maintain the dollar on its present basis at least for the time being.' Following such action by this country the decline in sterling probably marks a further step in competitive debasement of currencies, whether such a development is intentional or unintentional.

W HEN the Securities Act of 1933 went into effect a little over a year ago, borrowing by private corporations through sales of stocks and bonds had very nearly ceased. The banking suspension had occurred some four months earlier, and the deflation of the preceding three years had been felt with particular severity in the market for newly issued securities. The legalization of beer brought a number of brewery offerings into the market after the bank closings, and some others were made just before the law went into effect, but the total volume of such issues amounted to little. The past fiscal year, all but a few days of it under the Securities Act as originally passed, has shown a volume of issues only a trifle higher than in the preceding twelve months, the advance being more than accounted for by the increase in state, local, and farm loan issues, which are exempted from the provisions of the act.' The total volume of issues actually floated, according to the compilations of the Commercial and Financial Chronicle, amounted to just over I 2billion dollars in I933-34, compared to a figure of just over IS3 billions in the preceding fiscal year--the lowest of the depression. About one billion dollars represented new capital and half a billion was for refunding. Issues by public bodies amounted to I,I92 millions, against 607 millions in the preceding year, and those by private corporations to 364 millions, against 6I3 millions in I932-33. The figures of the Federal Trade Commission apply to securities registered, which may not be marketed in their entirety and are offered only after an interval of twenty days. In content, they differ from the Chronicle's compilation largely in that (i) they exclude the public group, which bulks so large in former figures, and railroads, (2) they include investment trusts sold as participating shares (excluded from the Chronicle's figures), and (3) they include deposit certificates under reorganizations. The total was 963 millions for the fiscal year; the bulk was issues of financial companies, which amounted to 609 million dollars. The latter figure is of especial interest because it gives an idea of the amount of financial flotations not included among those publicly issued. The latter amounted to little more than I0o2 million dollars according to the Chronicle's figures. The remaining items were industrial issues225 million dollars and those growing out of reorganizations -I 282 millions.2