Financial Analyst Journal

Mackintosh, George

doi: 10.2469/faj.v1.n1.3935pmid: N/A

The study reported here was undertaken to devise a method for checking the reasonableness of the apparently high price-earnings ratios of the so-called secular (long-term) growth stocks. The study examined earnings and dividends for 1926 and 1936 (chosen for the similarity of their economic conditions) and used stock prices as of August 1927 and February 1937. Various financial statistics for growth and nongrowth companies led to suggested reasonable price—earnings ratios, in periods of optimism, for various annual secular growth rates (up to 10 percent) and varying proportions of earnings paid out in dividends. Such information is useful in appraising stock prices in rosy market conditions and estimating future earnings of specific companies. The analyst can translate a company's estimated earnings into stock prices by estimating the outlook for earning's growth at the time of analysis.

Bretey, Pierre R.

doi: 10.2469/faj.v1.n1.3944pmid: N/A

Despite the wealth of statistics available for the study of railroad credit, procedures for using the data are far from an exact science. Second-grade and defaulted rail bonds in the past 15 years have experienced wild price gyrations. Although these changes reflect, in part, basic monetary trends, many institutional and other holders of rail bonds have apparently mistrusted or misused statistical tests in handling their portfolios. Although rail statistics do not provide a crystal ball for forecasting, they should furnish commonsense clues to future possibilities. This article discusses a proposed modification of the standard formula “number of times fixed charges earned” for gauging the changing fortunes of individual rail companies.

Tucker, Rufus S.

doi: 10.2469/faj.v1.n1.3937pmid: N/A

In an address given to the 28 November 1944 meeting of the Taxation and Price Division of the New York Chapter of the American Statistical Association, the author analyzed projected employment in the next three years (52 million), the national income that can be taxed on that basis ($120 billion), the likely revenue from individuals that could be obtained ($40 million), and the yield from individual income taxes according to various tax schedules ($6.7 billion to $14.0 billion). With a need for $9.9 billion in federal income, no reduction in corporate or individual taxes was foreseen. The major emphasis and recommendation is to remove taxes that prohibit obtaining the $120 billion—in particular, the excess-profits tax and the double taxation of dividends.

Gordon, Joseph

doi: 10.2469/faj.v1.n1.3938pmid: N/A

Knowledge and sound understanding of the petroleum industry's basic economic relationships and global factors (including recent development of huge reserves in the Middle East and Venezuela and uncertainty about oil use in the post–World War II world) are needed to successfully appraise the investment outlook for oil shares. Important factors affecting earnings are price levels and operating margins. Small changes in supply and demand can have great effects on prices. The best indicators of supply and demand are (1) inventories of crude oil and (2) finished products. The principal problems facing the industry are what will happen when price controls are lifted, how big the large reserves and refining capacity in the Middle East and Venezuela are, and what will be the growth in synthetic oil production in Europe.

Hooper, Lucien O.

doi: 10.2469/faj.v1.n1.3940pmid: N/A

In 1942, the Committee on Standards of the New York Society of Security Analysts proposed establishing a rating or professional title for security analysts. This article analyzes the arguments against such a rating—lack of demand or need for a rating, difficulties, and poor timing because of World War II. (See “Should Security Analysts Have a Professional Rating? The Affirmative Case” for the arguments for a rating.

Miller, Oscar M.

doi: 10.2469/faj.v1.n1.3942pmid: N/A

Despite the requirements of the U.S. SEC in recent years for corporations to file standardized financial reports in detail, the annual report is still the basic tool analysts use. The question is whether recent streamlined annual reports aimed at the general reader have suffered a loss of data and substance. The loss of statistical information is even noticeable in the reports of U.S. Steel Corporation, previously an exemplar in providing full information to stockholders. Analysts support the production of readable and humanized annual repots, but they need facts. Indeed, corporations should provide more rather than less statistical material in their reports.

Sterling, E. Ralph

doi: 10.2469/faj.v1.n1.3936pmid: N/A

Valuation of the “bundle of rights” held by holders of various classes of securities to assign fair shares in a new single issue is particularly important because of the reorganizations taking place as a result of the Public Utility Holding Company Act of 1935. The method discussed here takes into account the likely way in which the SEC would view the fairness of the apportionment. The method entails finding the present value of the total claims of each security holder, adding the values together, and determining the share of each in the new stock as the proportion each contributed to the total. The most important element is estimating normal earning power; also, the analyst must take into account the realities of earnings to be reinvested versus the share of earnings to go out as dividends and consider the fact that arrears on preferred must be paid off according to class. After estimating earnings by class, the analyst carries out the usual present value approaches to find a fair apportionment.

Graham, Benjamin

doi: 10.2469/faj.v1.n1.3939pmid: N/A

In 1942, the Committee on Standards of the New York Society of Security Analysts proposed establishing a rating or professional title for security analysts. This article presents the arguments for such a rating—the reassurance of investors that they are dealing with professionals, the prestige and promotion potential of those receiving the designation, and the encouragement of a group attitude of professionalism. The article also provides preemptive responses to possible objections. (See “Should Security Analysts Have a Professional Rating? The Negative Case” for the arguments against a rating.)

Young, Harold H.

doi: 10.2469/faj.v1.n1.3941pmid: N/A

The study reported here covered the P/Es of 60 companies as of 15 November 1945. Factors found not be influential were size and location (with the exception of New England companies, which all had high P/Es). The P/E was found to vary with debt-to-equity ratio, percentage of gross operating revenues remaining for common stock, and especially, percentage of common stock earnings paid out as dividends.

Tatham, Charles

doi: 10.2469/faj.v1.n1.3934pmid: N/A

The New York Society of Security Analysts was founded in 1937 by a small group of analysts who had been meeting casually for lunch. From 100 members at that time, it had grown to approximately 700 members by the end of 1944. The broad objectives were set early: to maintain a high standard of professional ethics and to improve analytical techniques. Volunteer committees carried out activities directed to achieving these objectives—primarily through numerous lunch and dinner “forum” meetings at which leaders in various fields and industries spoke. The NYSSA was incorporated in 1940, and the introduction of the Analysts Journal was part of its effort to make an important contribution to the welfare of the profession and the investment business in general.