Excerpt from How to Analyze Industrial Securities
Since the second edition the industrial boom was displaced by the trying business drouth of 1920. Those corporations which conserved cash will come through. However, some companies which declared earnings out in dividends are in better shape than those which converted cash into idle plant extensions. Such foolish action exchanged the very choicest of assets into virtual liabilities!
Part of our industries had been keyed up to supplying the demands of super-prosperity here, plus unusually large foreign requirements. Yet many industrial managers planned inventories and capacity as though demand would be multiplied indefinitely.
By now, however, calm vision has displaced mirage. "Book value" measurement has been displaced by the yard stick of earnings. The inherent weakness of "net current assets," composed all or mostly of goods, has received practical demonstration. Several warnings given in this and previous editions look mild enough in the light of recent developments.
Yet in spite of troubles contemporary, there is no doubt but that well financed and managed industrials will continue to deserve and receive high investment regard.
This book has been written for those who have taken care of the pennies, but who have found their dollars under constant siege by deceptive "opportunity."
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