FINANCE
Either Too Large or Too Small Financing is difficult for m e d i u m sized chemical firms: C a p i t a l needs a r e too l a r g e for banks a n d too small for stock COMPANIES, With C HEMICA.L rapid rate of growth, keep
theiT
out growing their plants. Although this is a very healthy situation, it does work a hardship on some firms. Acquisition of funds for expansion and working capital becomes difficult. This is par ticularly true among medium sized firms. These companies find that they are too small to get capital through public financing. For small stock or bond issues costs are almost prohibi tive, ranging u p to as high as 25 9c of the total issue. For ordinary stock flotations in amounts of $100,000, me dium sized manufacturers find that regular channels of underwriting are practically nonexistent. Yet these firms are too large to satisfy all their requirements through term loans from banks. As far as banks are concerned, long term loans demand an extensive continuity of business, while many small and medium sized chemical companies are only as certain as the life and continuing capacity of their owners. These are some opinions expressed by management at 29 medium sized chemical firms in Illinois, New York, Massachusetts, Georgia, and Louisiana. These firms, with a combined 1954 volume of $53 million, were surveyed on subject of financing b y Commercial Discount Corp., Chicago. Two of the 29 firms are clients of Commercial Discount, using accounts receivable financing. Manufacturing fields repre sented include pharmaceuticals, agri cultural chemicals, synthetic textiles, manufacture only their own products; others d o private label production for others. However, one problem is com mon to all: a squeeze on working capital. Commercial Discount says that for this reason the chemical industry has within t h e last five years turned to commercial finance companies for ac counts receivable financing. It says that although no formal study of the amount of financing of this type has been m a d e , it judges it must amount to about $ 7 0 million annually. In 1954, Commercial Discount did about $9 million in accounts receivable financing in the chemical field. This year, s u c h financing is at about double the 1954 rate. Most of the 29 firms surveyed said 2862
that this squeeze on working capital is responsible for the large number of mergers among chemical companies be tween 1948 and 1955. Mergers in the chemical field totaled 7 3 , the third
highest of all industry (C&EN, June 27, page 2710) between 1948 and 1954. Commercial Discount concludes that the growth of accounts receivable fi nancing in the chemical field will pos sibly slow u p this merger movement, and enable many small and medium sized chemical companies to continue to expand until they are large enough to receive public financing in economi cal quantities.
Chemical Stock Index Prepared C o m m o n stock price indexes for chemical a n d drug industries will be issued monthly b y b a n k i n g firm COMMON
STOCK PRICE
INDEXES
for
^ the chemical and ethical drug in dustries will b e issued monthly by the investment banking firm of Smith, Bar ney & Co. T h e indexes will b e based on the last price of the component common stocks on the last business day of the month. In initiating the service, Smith, Bar ney has computed the indexes back to January 1946, using 1946-49 = 100. Each index includes the common stocks of the major publicly owned companies in the field: 22 chemical companies and seven ethical drug companies. Indexes are computed on the "weighted aggre gate" method, under which the weights comprise the number of shares out standing at each price period. Using this method the relative importance of the total value of each company's com
350 300
mon stock is taken into consideration. In addition to the industry indexes, relative or index numbers have been computed for each of the companies. Base periods vary for individual com panies because public ownership, in some cases, dates after January 1946. Firms included in the drug index are Abbott, Merck, Parke-Davis, Pfizer, Schering, Searle, and Smith, Kline & French. Firms included in the chemical in dex are Air Reduction, Allied, American Agricultural Chemical, American Cyanamid, American Potash & Chemical, Atlas Powder, Blockson, Commercial Solvents, Diamond Alkali, Dow, Du Pont, Hercules, Hey den, Hooker, Inter national Minerals, Olin Mathieson, Monsanto, Pennsalt, Rohm & Haas, Spencer, Union Carbide, and Victor.
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Chemical and Drug Stock Price Indexesjj ( 1 9 4 6 - 4 9 = 100)
250 20O 150 10O SO
JAN. '46 CHEMICAL
AND
ENGINEERING
NEWS
