Eliminating from the balance sheet $508,302,500 common stock under the plea that it represents nothing but good will, we still have $741,019,795 surplus accumulated in nineteen years, or sufficient to restore with tangible value the common stock item wiped out and still leave a surplus of about $233,000,000. Or, deducting from present book capital and liabilities, plus surplus and reserves which may fairly be regarded as surplus, the common stock item, leaves a balance, representing tangible investment of $1,670,028,825.

On this basis the assets behind the common stock are not far from $150 a share.

There is still another way of calculating values, and here again let us eliminate the original common stock for reasons already given and place the value of the investment in the Corporation in 1901 at $815,000,000 in round figures, or approximately the aggregate of the bond- and preferred-stock issue. The ingot capacity based on this investment was 9,425,000 tons. The ingot capacity on December 31, 1919, was 22,350,000 tons. Presuming that investment has increased proportionately with its capacity, the value behind the Corporation’s securities is now $1,930,000,000 and this makes no allowance for values represented by coke by-product plants, cement plants, increased ore reserves, shipyards, etc. Ingots alone are taken as the base of the calculation since this product is generally regarded as the measure of a steel company’s capacity.

In studying the Corporation’s annual reports, the analytical investor will find certain indications that appear discouraging at first glance. They must be examined in the light of other facts and particularly in the light of comparative tangible investments.

Reference is here made to the increasing tendency shown in the operating ratio of the big company. Normally, an increasing operating ratio, a tendency toward diminution of the margin between operating expenses and gross receipts, is not a healthy sign in any business, and the Corporation undoubtedly shows just such a diminution.

But in the case of United States Steel this usually unfavorable factor is really a tower of strength. It is, in fact, deliberate. It is part and parcel of the Corporation’s policy of giving the wage earner as large a share as possible in the proceeds of operations. And it has been possible to increase the worker’s share of gross sales in recent years without injustice to stockholders only because of the ploughing back of profits of previous years into new plants, increasing the investment, and enlarging capacity.

Because of this policy, it has been possible for the Corporation to show increasingly large earnings on its shares, although capital’s percentage in gross receipts has declined. It is hardly necessary to say that there is no intention of letting the decline go beyond just limits. Although the Corporation’s management has always shown recognition of the rights of the worker in this as in other ways it has never lost sight of the equally important rights of the investor and the latter has no cause to fear that it will ever do so.

In 1901 on a net investment of approximately $815,000,000 the Corporation, to pay bond interest, preferred dividends and 5 per cent. on its common stock, had to earn approximately $85,000,000. To-day, to pay the $80,000,000 required for the same purposes, it has a net tangible investment of between $1,700,000,000 and $2,000,000,000.

The following table illustrates how increased investment and capacity permit the big company to show large earnings on its stock with a much smaller return on its investment or capacity to-day than was possible in 1901.

19201901
Actual investment$1,800,000,000$815,000,000
Interest and dividends at 5 per cent. on common stock.80,000,00085,000,000
Per cent. on investment.4.410.5
Per ton earnings needed on iron capacity to earn interest and dividends$4.34$11.42
Per ton earnings needed on ingot capacity to earn interest and dividends3.589.02
Per ton earnings needed on finished steel capacity to earn interest and dividends4.9411.01