Proportion of Quick Assets to Quick Liabilities, excluding debenture bonds$3.91 to $1.00.

Proportion of Quick Assets to Quick Liabilities, including debenture bonds— $2.92 to $1.00.

Net Worth

Net worth of the Company, December 31, 1920.

Book worth of Common Stock, per share

Common Stock earned in 1920, after deducting Federal Taxes

*Includes Canadian Quick Assets. Includes Canadian Quick Liabilities.

$17,782,846.37

223.10 28.01%

Profits of Canadian Company not included in above.

We have expended during the year for maintenance and repairs on manufacturing plants $331,754.93 and charged off for depreciation and displacements on manufacturing plants, machinery and equipment of branch houses, general offices, and showrooms $659,538.16. All bad and doubtful accounts and notes receivable have also been charged off.

JOHN H. HOWARD
Treasurer

Chicago, Illinois

February 1, 1921

CHAPTER XI

INVESTIGATION OF NON-SPECULATIVE
ENTERPRISES

Speculative and Non-Speculative Enterprises

The scope and results of investigation in any particular case depend largely on the nature of the enterprise. For the purposes of the present discussion, enterprises are divided into two classes: (1) non-speculative enterprises, in which the uncertain qualities may be so far eliminated that the undertaking becomes one of ordinary business risk-for risk there is in all business; and (2) speculative enterprises, in which the unknown quantities cannot be determined save by some considerable measure of development, and in which the risk is therefore greater—and in most cases vastly greater than in the ordinary business enterprise. Obviously to justify such an undertaking the possibilities of profit must also be greater than in the ordinary business enterprise in other words, they should be commensurate with the risk.

Some of these speculative enterprises are so utterly indeterminate as to value, and so far removed from any ordinary business operations that their development can only be looked upon as gambling—as much so as betting on a horse race, or placing money on the turn of a wheel-gambling that no business man would indulge in as a matter of business. Others of a highly speculative nature are still gambling, but gambling of a legitimate nature, the risks, while great, being justified by the profits in case of success. It may also be noted that outside of manipulated operations and war-time profiteering—it is from these speculative ventures that come most of the sudden and dazzlingly brilliant rewards of the industrial and business world.

Investigation of a Store Location

Enterprises which merely involve the ordinary business risk may be investigated and their merits and possibilities determined in advance with fair accuracy. In many cases this is attained at small cost, and in the case of established lines of industry, by the simplest procedure. For instance, suppose the managers of a modern chain store system wish to open an establishment in a new city. The first and all-important point is the selection of a suitable store location, and for this purpose a survey of the city is made. In most cases the general neighborhood to be selected is determined by the nature of the business. For a meat market or grocery store of small size, a residential neighborhood is to be preferred; a cigar store would usually select a business section; while a confectionery store might be successful either in a business or residential quarter.

The general survey would probably result in the selection of several tentative locations. The choice between these is made by a more careful consideration of the respective neighborhoods, this including rental costs, and by an actual counting and "sizing up" of those passing by the prospective locations in the course of a day. The location passed by the greatest number of persons is, of course, the most desirable, provided the character of the passersby would make them purchasers of the wares to be sold. For instance, the thousands of clothing workers streaming by on their way to the shops in the early morning and hurrying back to their homes in the later day would not be a desirable purchasing clientele. Their number would perhaps be entirely sufficient, and in this day of high wages they would not lack in purchasing power, but they pass within too narrow time limits and, even had they the desire, are usually too hurried to stop and buy. The decision must be based not merely on the number of passers-by, but on the number of probable purchasers.

When the proper location from the standpoint of general character and probable purchasers has been decided, the neigh

borhood must be further considered from the standpoint of existing competition and the possibility of securing suitable store space at or near the desired point. Or this investigation might be made at the time the neighborhood is being studied for its general suitability. This done, store space is rented and business is begun.

When store space has actually been secured, the future of the undertaking is practically settled. The kinds of goods that should appeal to the purchasers in the new location are in stock; managers trained in other stores are available; the general plan of the store its arrangement, its sales organization, methods, and policy—all are fully worked out, and the profitable operation of the new undertaking is a foregone conclusion. The only question then is, how great will be the measure of its success?

On this point the following statement from the president of a well-known chain of stores is interesting:1

I am frank to say that the men in our real estate department who choose the location for our new stores have a foresight that is almost uncanny. It is not at all uncommon-in fact I may say it happens almost without fail—that they return from the selection of a location, and, with their report, turn in an estimate of the business we will do there during the first six months that often coincides within a couple of hundred dollars of the actual amount taken in during the first six months that store is in operation.

As to the method of selecting locations, the same writer says of their real estate men:

Their system is efficiency plus. In large cities they study carefully the general trend of traffic, they estimate the hours during the day when a certain number of people will pass a given spot, and they study such local conditions as proximity to manufacturing plants, factories, or other large enterprises. In the smaller cities they make an even more extensive survey, carefully choosing locations on streets that are popular thoroughfares where the masses are wont to congregate. They also make a close study of racial characteristics—a matter which I Edward Wise in Administration, March, 1921.