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PART III

INVESTIGATION OF AN ENTERPRISE

Will It Pay?

CHAPTER VIII

IMPORTANCE OF INVESTIGATION

Possibilities of new commercial or industrial activity exist everywhere. A ledge of valuable marble is discovered in a Vermont pasture; a Texas farmer awakes some morning to find his property "suspected" of oil; a Nevada prospector stumbles on a vein of mineralized quartz; a salt deposit two thousand feet thick is discovered in Louisiana; a ledge of phosphate rock is found in Florida; an inventor devises an automatic receiving mechanism for wireless telegraphy; a capitalist lays his plans for the consolidation of competing railroad lines, the formation of a manufacturing combination, or the development of a new industry.

In many cases the original owners of these possibilities are either unaware that they possess an enterprise or the basis of an enterprise—or are unable to finance or develop it if they know of its existence. The potential enterprise then lies dormant until taken up by some neighbor, friend, or outside promoter. These promoters may themselves secure the money needed for the project, or they may pass it along to other promoters, who in turn interest capitalists. These latter may develop the enterprise with their own funds, or may sell it outright, or perhaps capitalize it and offer the stock to the public.

When any one of the thousand and one possibilities of the business world is brought forward for financing, no matter by whom or in what stage of its progress or development, the first and most important question is: "Will it pay?" The question can only be answered by investigation. This investigation, then, is obviously of the most vital importance to everyone interested, whether owner, promoter, operator, or investor. Upon its

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thoroughness, intelligent direction, and accuracy depend the safety of the investment-if an investment is made and to a very large degree the whole future of the enterprise.

For Whom Investigation Is Important

In this matter of investigation there is, when an enterprise is to be financed, a paralleling of interests of both owner or promoter and the prospective investor. The owner or promoter is desirous of capitalizing his enterprise at the highest legitimate figure and the prospective investor wants to "come in" at the lowest possible figure, and in these respects their interests are opposed. But in each case, before the financial aspect of the undertaking can be intelligently considered, both parties require the same basic information. No matter what the enterprise to be financed-the development of a mine, the exploitation of an invention, the combination of existing industries, or some other form of commercial activity, the owners or promoters cannot determine the value of what they have to offer until a very thorough investigation has given a basis of estimation, or, in the case of a going concern or a combination of going concerns, until appraisals have been made and balance sheets and profit and loss statements have been worked out and so compared and combined as to supply the desired information. On the other hand the investor cannot gauge the worth or the safety of the investment offered until he has in some way secured access to the same data. Both are vitally interested in the intrinsic worth of the enterprise and consequently in the adequacy and accuracy of the preliminary investigation.

Reasons for Inadequate Investigation

Notwithstanding the importance and the very elementary necessity of a thorough investigation of any enterprise on which money is to be spent, enormous sums are lost every year simply because the investigations made in advance of investment are

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