Tangible asset

“ According to legal theory the investment or the cost plus surplus is the proper basis. This idea has been fostered by the fact that shares have been assigned a definite face value. While at the beginning of a new enterprise investment value and capitalization may closely correspond generally, they soon diverge widely—due to smaller or greater earnings than were estimated or to depreciation or accretion in the value of the assets. When the potential earning power of the business begins to be realized, conditions begin to change and the value of the tangible and intangible assets fluctuates. ”

“ Asset bubbles are not the exclusive domain of stock exchanges and shares. "Real" assets include land and the property built on it, machinery, and other tangibles. "Financial" assets include anything that stores value and can serve as means of exchange - from cash to securities. ”

“ Just as it is a misfortune to be born under some conditions, so here it would be a misfortune to a commodity to be produced during the latter years of the service life of an asset. The life-period of an asset must be viewed as a whole and its total depreciation should be distributed evenly over its output, if equity is to be secured—other conditions, of course, remaining the same. ”

“ Conclusion.—The problems of valuation are vital to any business and intimately concern its financial integrity. In order to maintain at least the original capital investment in a business, it is necessary to make provision for the decrease in asset values due to different causes. The financial management of the business must watch this feature closely, else capital will be dissipated and the business rendered incapable of performing the functions for which it was organized. ”

“ We have taken active and prudent steps to deleverage, control the scale of debts, and expand equity finance. The debt-to-asset ratio of industrial enterprises has been consistently declining. Macro leverage ratio is increasing by much smaller margins and is generally stable. ”

“ Unless it can be seen to possess inherent value entirely apart from the earning capacity of the subsequent investment or from the actual earnings resulting from such investment, the value asserted or claimed is but a duplication of that derived from the use of the tangible property when so invested. ”

“ The effect of such a policy, if operated without check, is to create what is known as a “secret reserve.” The value of the asset is charged more rapidly against operation than the asset actually wastes. Hence the books show a reserve sufficient to cover the cost of asset while there are still values remaining in the asset. In other words, the business possesses an asset of value which is carried on the books as of no value. Were the real present value of the asset brought on the books, the contra credit would appear in some surplus or profits reserved account. ”

“ And the promise to pay interest or rent, or the expectancy of dividends upon stock, the amount of such payments, the past and prospective regularity of the payments, and other elements bearing upon the expectation of the receipt of income affect the value of any income producing property. But these elements are not separately valued in appraising the worth of the asset at any given time. It is the uniform practice to value the asset as an entirety, taking into consideration all the elements that go to give it value in the market. ”

“ To the extent that such fluctuations are predictable, they must be considered in making a reasonable estimate of salvage or resale value of the investment. See Bolta Co., 4 CCH Tax Ct.Mem. 1067. [5] In addition, as reflected by this case, predictable market fluctuations in value may also affect the useful life of the asset. To the extent that disposal of an asset by sale becomes more attractive through market appreciation it can be expected that useful life, as defined in Massey Motors, supra, will shorten. ”

“ Arbitraging transactions, as between different places, time-speculation, transferring labor and capital from one enterprise to another, increasing the supplies of some goods and reducing the supplies of other, changing land from wheat to corn, etc., etc.,—all these things are sources of gain, and they will be done, whatever the origin of the values involved. The new, dynamic enterprise, before it becomes actualized in concrete machinery, factory building, etc., and long before its income is actualized in money-receipts from the goods it is destined to produce, becomes an object of value. ”

“ These securities represent capital, tangible and intangible, which is already employed in the ordinary business of the concern by which they have been issued; the capital, therefore, is already in use to the full extent and is presumably yielding the ordinary rate of earnings. But the solvency for which the ownership of this capital affords a basis may further be useful in enabling the owner to carry on a traffic in vendible corporate capital without withdrawing any appreciable portion of his holdings from the lucrative investments in which they have been placed. ”

“ Almost all loans at interest are made in money, either of paper, or of gold and silver; but what the borrower really wants, and what the lender readily supplies him with, is not the money, but the money's worth, or the goods which it can purchase. If he wants it as a stock for immediate consumption, it is those goods only which he can place in that stock. If he wants it as a capital for employing industry, it is from those goods only that the industrious can be furnished with the tools, materials, and maintenance necessary for carrying on their work. ”

“ All industry, except that of the makers of active instruments, may be considered in the light of an operation, the aim of which is to keep the stock of passive [Pg 187] capital goods intact, or, what is the same thing, to keep the fund of circulating capital undiminished. Whoever puts anything into this fund enables it to overflow and to furnish an income without suffering any diminution. The sole purpose of such capital is to overflow, that is, to suffer, at one and the same time, a loss and a replenishment which neutralizes the loss. ”

“ Finally, the power of disposal over an asset during a period may offer a potential convenience or security, which is not equal for assets of different kinds, though the assets themselves are of equal initial value. ”

“ And where it does not happen to suit the party who is to receive, to accept a transfer of stock, the party who is to pay is never at a loss to find, elsewhere, a purchaser of his stock, who will furnish him, in lieu of it, with the coin of which he stands in need.
Hence, in a sound and settled state of public funds, a man possessed of a sum in them, can embrace any scheme of business which offers, with as much confidence as if he were possessed of an equal sum in coin. ”

“ If the capital liabilities exactly balance the property assets, it is plain that the surplus will exactly balance the net quick assets. If the surplus is smaller than net quick assets, it is usually a sign that capital liabilities have been created to provide working capital. ”

“ The difference between the market value of corporate securities and the physical property owned by the company is ascribable to intangible wealth, which may be a reflection of organization and experience, maybe of good will, maybe of patent rights. If the aggregate market value of a stock be less than the cost or reproduction value of the physical property the chances are that the usefulness of a portion of the latter has disappeared and consequently that some physical value has been extinguished. ”

“ Driven to a legal concept for a definition of credit, we were obliged to exclude stocks from our rough definition. But corporate organization does precisely what the various other transactions that we have called credit transactions do. Lands and buildings and machinery, or the roadbed and rolling stock of a railroad, are highly specialized, often unfit for use in any form other than that in which they now appear. As concrete instruments of production, they would be highly unsaleable. In their totality, as a going concern, they are highly unsaleable, because in the aggregate so very valuable. ”

“ In times of continued business prosperity very high rates are demanded for the use of money, because the liquid capital of the country, to a large extent, has been converted into fixt forms, in the development of new mines, the building of new factories and railroads, and in the improvement and extension of existing properties. These high rates have the effect of reducing the price level of investment securities because people having such securities are apt to sell them in order to lend the money so released, thus maintaining the parity between the yields upon free and invested capital. ”

“ The apparent contradiction between distributing by lot and having a common purse disappears when the distribution by lot of the common property is so made, that the retaining of a stock-capital, or reserve fund, is not excluded. ”

“ At length, finding that the affair was getting beyond his control, the means of his permanently concealing it being rendered more and more difficult by its magnitude, and the fact that losses in trade, perhaps the interest upon the lost capital, swelled up an awful total, he took the Newtons into his confidence, and the set devised a scheme for colourably selling his stock-in-trade, fixtures, good-will, &c., &c., for extending the premises, and so forth, and burning the place down, so as to realise a large sum in ready money—considerably more than the value of the things insured. ”

“ If all that were desired were to use property as an instrument for purchasing security, the obvious course—from the point of view of the investor desiring to insure his future the safest course—would be to assimilate his position as far as possible to that of a debenture holder or mortgagee, who obtains the stable income which is his motive for investment, but who neither incurs the risks nor receives the profits of the speculator. ”

“ There has never been any estimate of the national wealth that includes the intangible. The aggregate value of the securities of our industrial corporations must logically be in excess of estimates of their physical property. ”

“ It might seem, in other words, that when the stock has once passed the stage of organization and gone into the hands of the purchasers, each share represents nothing but an undivided interest in the aggregate capitalization of the concern, so that the particular item of wealth represented by a given share or given form of security can no longer be identified. ”

“ The principle of distribution of risk is a simple one. It involves no more than obedience to the old rule which forbids putting all one's eggs in the same basket. The number of men who carry out this principle with any thoroughness, however, is very small. Proper distribution means not only the division of property among the various forms of investment, as railroad bonds, municipals, mortgages, public-utility bonds, etc., but also the preservation of proper geographical proportions within each [14] form. ”

“ I know the intrinsic value of the chief securities in the market, so, by lending conservatively and keeping an eye on the Stock Exchange, I can realise at once in case of a decline if sufficient margin is not instantly placed in my possession to protect the loan. ”

“ We need to make sure that the valve of aggregate monetary supply is well controlled, maintain moderate growth in M2 money supply, credit, and aggregate financing, ensure a reasonable, stable level of liquidity, and increase the proportion of direct finance, particularly equity finance. ”

“ If a property earns only its operating expenses, including therein proper depreciation reserves, taxes, and such a percentage on its actual invested capital as could be earned by that capital if invested in good non-taxable bonds or other like security, it is worth no more than its physical property is worth. If it earns more than that, it is due to the franchise, going concern, or other intangible elements of value, and, to determine that value, capitalize the surplus. ”

“ The immediate supply of loanable funds is indeed a matter of great importance, but before any economic interpretation of that condition be made it is essential to examine the sources of those funds.
Underlying everything is wealth, which in the economic sense is physical property, either in the form of land, buildings, railways, machinery, etc., and stocks of commodities. A relatively small element of wealth is the physical property that we know as gold. ”

“ The Inventory of Movable Property or Securities—The capital represented by movable properties, stocks, bonds, shares, etc., is the only kind of capital which lends itself to statistics—The great groups of movable properties: National Funds, Railway Shares, Insurance Companies, Foreign Banks, Mortgage Companies, and agricultural and industrial undertakings. ”

“ Their holdings of investment securities are kept well within the limits set by their aggregate capital, surplus, and savings funds, and their method of handling commercial business, based as it is on accurate knowledge of their customer's operations and upon the lien upon produce heretofore described, prevents their acceptance, through ignorance, of investment securities under commercial disguise. ”

“ As time passes, however, and economies in operation commence to make themselves manifest, and especially as waste and extravagance are curtailed, the country as a whole commences to accumulate real liquid capital; that is to say, its total production leaves a surplus over the amount of consumption. In the state of business feeling which has been pictured, the undertaking of new business ventures or additions to existing properties would not be approved, so that the surplus wealth created finds its way into bank deposits as liquid capital. ”