Commercial Paper is a Medium of General businesses need to borrow money for short periods of time to a considerably larger extent than public service corporations. They find a call for merchandise and a chance to buy it for less than they can sell it. To fill all orders they can get they need more money than they have with which to buy this merchandise. Such borrowing as this, to buy merchandise or something similar, which is to be turned into cash, presumably at a profit, and within a short time, is called borrowing through commercial paper. Commercial paper is the name given the medium for such borrowing and is not properly applied to any other form of borrowing. It fills a field of its own and requires separate analysis and study. It is different from the borrowing of railroads and public service corporations, even for an equivalent time. It is different from the borrowing of an individual on the most salable of security and with ample margin. It is a method of finance all its own, just as mortgage bonds are in their particular field. It is a very important factor in the financial system of any country. As business is the attempt to turn available wealth into capital, and as most business must have to do with the purchase and sale of merchandise, so commercial paper must play a most important part in financing the business needs of a community or nation. Commercial paper is one of the biggest aids that we can make use of in economic progress, that is, in the acquisition of true wealth. Commercial paper is entirely as proper an economic medium for borrowing and lending in its own particular field as are other forms of security in theirs, and when properly used to do the work for which it is intended, and no more, it is exactly as safe. In fact, for the student of fundamental conditions, who at times needs to have his money in liquid form awaiting a forced readjustment or panic, good commercial paper is often the very best investment procurable. As in the case of long term bonds, commercial paper which is to be widely distributed, brokers' paper, for instance, should on its face appear to be issued with full authority and to be amply protected. Such paper will be more readily distributed, will command lower rates and will be of better service for both lender and borrower if it appears in so favorable a light that the burden of proof will be on him who would make it appear unsound. CHAPTER V THE ANALYSIS OF A FINANCIAL STATEMENT A AND REPORT. FINANCIAL report consists of two parts, a statement of the assets and the liabilities, and a report for at least the period of a year of the earnings and the expenses. The value of a property being largely dependent on its earning capacity, no financial report is complete without a representation of both of these items. Mills, stores and supplies of merchandise can, of course, be sold either for like use by others or for purposes other than those for which they have been used. For the purpose of representing financial condition in respect to these items, a statement of assets and liabilities alone will suffice and is all that is often given. Such a statement is not sufficient, however, if the true condition of any company as it exists is to be found. A Financial Statement Should Appear in Its Simplest Form. The statement of assets and liabilities should be a trial balance of the books of the company after all accounts have been reduced to their simplest form. A trial balance showing many items which should, for instance, be charged to profit and loss is not in clear form. The investigator should analyze all general items on a statement, and should be aware at least of their general make up; but this work of analysis should be a study separated from that of a review of the general financial condition of the company. It should be a subdivision of this work. The first regard of a student of the finances of a company should be for totals on the asset and on the liability side of a statement which are properly to be contrasted. For this reason he should not be forced to examine minor items on the asset side, for instance, which he will ultimately have to charge to the liability side, or vice versa. He should demand that the statement he is to examine be presented in its simplest form with an explanation of its items set down elsewhere. If it cannot be so presented, it should be his first duty to place all items under their proper general headings. The Usefulness of a Statement is in Its Representation of Contrast. In any statement of assets and liabilities, the assets should be entirely by themselves and the liabilities entirely by themselves. The usefulness of a statement is in its representation in contrast. If, for instance, the assets are arranged as follows, as often happens, a poor form of statement results. The mortgage should appear among the liabilities, so that at a glance an observer can see that the total money put in the business is $60,000, which is represented by $60,000 of property. The other form of statement, as exhibited, shows the situation; but it does not set it forth clearly and it does not show the margin of safety. It does not show at a glance that there are $60,000 for which the assets are liable. In the case of a statement at all confused by many items, it may take a careful review to diagnose properly the situation. A careless observer might pass over the mortgage, the most important item, altogether. The first thing, therefore, for the analyzer of a financial statement to do is to make clear to himself exactly what are the liabilities and their nature, and the assets and their nature. The Form of Statements Must Necessarily Differ. Statements of assets and liabilities vary in their form according to adaptability of the form for showing the financial condition of any particular company. A mercantile company should show its assets and liabilities carefully grouped to represent |