resort may be distinctly helpful, calling wide attention to the region in question, securing better railroad rates, adding to the interest, and contributing to the maintenance of stores, theaters, and trolley-lines. (f) Do any other local conditions exist which would affect the enterprise injuriously? Sometimes these local conditions take the form of unfriendly legislation and may be very serious. For instance, oleomargarin is a valuable product largely used as a low-priced substitute for butter. In these days of high costs it would seem reasonable that its production should be encouraged. Congress, however, in its desire to protect the farmers of the District of Columbia, has decreed that oleomargarin manufactured or sold in the District must be colored pink in order to differentiate it clearly from butter. The resulting product is unquestionably easily distinguished from butter, but its sale is difficult and the Congressional enactment has been disastrous to the industry so far as the District of Columbia is concerned. Perhaps unfavorable local conditions take the form of an unfriendly attitude on the part of the inhabitants. In many parts of the country a sanitarium for the treatment of tuberculosis would meet with such strong local opposition as seriously to endanger its successful operation; a residential district would naturally oppose the location of a factory in its midst. Other local conditions requiring consideration may be of varying natures. Thus it is obvious that the vicinity of a boiler factory would not be desirable for the location of a "rest cure"; nor should a meat market be established in a vegetarian colony; nor would it be wise to attempt the establishment of a monopolistic trust in Russia. Unfavorable conditions are not usually so extreme as these; but if they exist, their nature and their bearing on the new enterprise should be studied before its location is definitely decided. CHAPTER X INVESTIGATION OF AN INCORPORATED ENTERPRISE -THE INVESTOR'S QUESTIONS Purpose of the Investor's Questions The "Investor's Questions" were originally prepared to assist in the investigation of an enterprise from the standpoint of the investor. They cover broadly the important points in regard to an incorporated undertaking upon which the investor has a right to be informed and upon which he must have information if he is to judge the offering intelligently. As these same points must be considered with even greater care by the parties who make the offering, the questions are brought in here. They will be found suggestive in both the investigation and the shaping up of an enterprise for financing. In the consideration of any particular undertaking, it is not probable that all the questions given will be found applicable. The answers to some will be obvious; others will not apply, or will be unnecessary. The questions must therefore be used with this in mind. Those that do not apply, or are not needed for the particular case may be ignored. If the information required by these questions, so far as they may apply, is incorporated in a prospectus together with any features peculiar to the particular enterprise, it can hardly be doubted that the presentation will be adequate. The questions as given apply to a going concern. For the investigation of a newly organized undertaking they must of course be modified to meet the conditions. Estimates must then take the place of most of the operating information called for by the questions. The questions refer to a manufacturing enterprise, but they are easily modified to apply to any other industry or business. Outline of Investor's Questions The following outline of the investor's questions concisely indicates their scope. While they cover the basic features of an enterprise as analyzed in the preceding chapter, they also go beyond this, taking up organization and operating features as well. I. Nature of the Enterprise II. Environment III. Corporate Organization IV. Present Conditions A-As to property B-As to operation C-As to finance V. Management A-Directors B-Officers VI. Operating Organization VII. Proposition VIII. Disposition of Money Secured IX. General THE INVESTOR'S QUESTIONS I. NATURE OF THE ENTERPRISE 1. What is the undertaking? What does it comprise? 2. Is the basis of the undertaking sound? 3. Are similar undertakings in profitable operation, i.e., is the undertaking one of proved profit? 4. What competition-present or prospective-will be met? 5. What special advantages does the present enterprise enjoy that will enable it to withstand or overcome competition if it exists or arises? 6. Is the margin between cost and selling price sufficient for profitable operation? 7. Is the demand for the product or output permanent and sufficient for profitable operation? 8. Can the enterprise be conducted profitably under the existing conditions? 9. Does it offer sufficient profit and development possibilities to be worth while? II. ENVIRONMENT 1. Is there any local or other opposition to the enterprise? 2. Is the supply of raw material sufficient, accessible, and satisfactory? 3. Is the supply of water, fuel, light, power, and other essentials of operation satisfactory as to quantity, quality, and procurement cost? 4. Are transportation facilities and service adequate and the rates reasonable? 5. Are the markets for the product accessible and capable of absorbing the output at a satisfactory price? 6. Is labor available in sufficient quantity and at a reasonable price? 7. What is the attitude of labor toward the enterprise, i.e., will the proper output be secured and is there danger of strikes? III. CORPORATE ORGANIZATION 1. In what state was the corporation incorporated and when? (a) Charter? (b) By-laws? 3. What is amount of common stock and par value if any of its shares? 4. What is amount of preferred stock-if any-and par value of its shares? 5. Is the total capitalization reasonable? 6. What are the preferences of preferred stock? 7. Is the preferred stock properly protected as to assets, cumulation (a) Issued: Common? Preferred? (b) Unissued: Common? Preferred? (c) Held in treasury:1 Common? Preferred? 10. What values were received in exchange for the issued stock, i.e., what cash, property, or services? 11. Was any of the issued stock returned to the treasury of the company? 12. If so, what disposition has been made of it? 13. Who has stock control of the corporation? IV. PRESENT CONDITIONS A-As to Property 1. What property or rights are owned or controlled by the company? 2. Are these properties or rights owned outright or held under lease, license, grant, option, or on other tenure? 3. If rights are included in the company's holdings, on what basis are they held and how soon, if ever, do they expire, or are lost to the company? 4. If owned, are titles perfect? 5. If not owned, are the terms of holding reasonable, satisfactory, and safe, and are holding papers in due form? 6. How much was paid for these properties or rights— (a) Total amount? (b) In cash? (c) In company's securities? (d) In other ways? 7. What are the terms and amounts of any payments yet to be made for these properties or rights? 8. How are deferred payments, if any, secured? 9. What is the present estimated value of these properties and rights? IO. In event of liquidation, what would be the worth of the company's properties and rights? II. Is the property well adapted to the company's purposes? What deficiencies, if any? 12. Is the property owned by the company in first-class condition, or will improvements be necessary in the near future? I For distinction between unissued and treasury stock, see Chapter XXIII, "The Corporate System." |