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POIYPËOSEIG lESPimTE Of BEOOKLYI
by
Bernard flshman
May 1961
ApToraved;
^
Head Depa^%ment
ProQuest Number: 27591407
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I shoaia lik e to express my sin ce rest
g ra tita d e to Dr. Edward H. Hampel,
whose advice end encoaimgement have
made th is essay p o ssib le.
TABLE OP CONTENTS
In tro du ction ................................................................................................................. 1
PART I. ECONOMIC AND FINANCIAL BACKGROUND.................................... 1
1. Economic Survey of the Indu stry ......................................................... 2
Expansion R atios; Employment S ta b ility ; Size of
Establishm ents; Value of Output by Plant Size;
Inventories and Expenditures.
2. Survey of Business F a ilu re s............................................................. . 14
Number of F ailu res; Causes of F ailure
PART I I / PLANNING THE FINANCIAL STRUCTURE.....................................23
3. Significance of F inancial R atios ................................................... 24
F inancial Statem ents; D escription of R atios;
Previous Use of R atios.
4. A pplication of F inancial R atio s...............................................................28
D eterm ination of F inancial R atios;
A llocation of Funds.
PART III. PLANNING THE ESTABLISHMENT OF A
SPECIFIC SMALL METAL PRODUCTS PLANT...................................36
5. A New Business and Its P ro d u c t...............................................................37
Going into Business; Product D escription.
6. Production Planning..............................................................................................48
M anufacturing Processes; M achinery, Equipment,
and Tools; Machine Use Planning; Personnel and
Wages; Plant Layout.
7. F in a n c e s .................................................. 69
Cost Estim ate; S ellin g Price and P ro fit;
Predicted F inancial Statem ents.
Appendix.................................................................................................................................81
B ibliography........................................................................................................................98
INTRODUCTION
The purpose of th is paper is to develop a s c ie n tific
or ra tio n a l approach to the establishm ent of a small m etal pro
ducts fab ricatin g p lan t. Although many books have been w ritten
on "going into b usiness",^ none deals sp ecifically w ith the
small m etal products fab ricatin g p lan t. Several d etailed stu
dies have been made fo r small r e ta il and service businesses,
probably because of the increased post war in te re st and the high
degree of business m ortality. However, the studies in the manu
factu rin g fie ld s are lim ited in’ number and general in nature.
I t is hoped th at th is essay w ill f i l l the void and serve as a
guide fo r the establishm ent of a small m etal products fab ricatin g
plant.
An economic survey w ill f i r s t be made of the industry
as a whole in order to evaluate its s ta b ility and op portu nities.
This w ill be follow ed by a survey of previous business fa ilu re s ,
in order to illu s tr a te the seriousness of the problem and to
give some in sig h t into the causes of these fa ilu re s.
Since fa r too much stress has been put on technical
"know-how" by many in d iv id u als going into a new business, with
almost complete disregard for fin a n cial considerations, the
^B ibliographies are included in the follow ing books:
K elley, P.O. and Lawyer, K. How to Organize and Operate a Small
B usiness, New York; P rentice H all, In c ., 1949. pp 735-752;
Dauten, Carl A., Business Finance, New York: P rentice H all, In c.,
1948. pp 507-613; Larson, H enrietta M., Guide to Business
H isto ry, Cambridge: Harvard U niversity Press, 1948.
il
fin a n c ia l stru ctu re of a small m etal products fab ricatin g
plant w ill be planned, with p a rtic u la r emphasis on fin a n cial
ra tio s . D etail plans w ill be presented fo r a plant to manu
factu re a sp ecific m etal product, w ith due consideration of
the previously determ ined fin an cial stru ctu re.
Although stre ss w ill be placed on the small m etal
products fab ricatin g p lan t, i t is believed th at the same kind
of approach w ill be applicable to many other types of business.
1.
PART I
ECONOMIC AND FINANCIAL BACKGROUND
2.
ECONOMIC SURVEY OF THE INDUSTRY
Census data from the U.S. Dept, of Commerce^ were
found to be best suited fo r an evaluation of the economic back
ground of the industry. No sig n ifican t data were obtained from
any other source. The tab les of economic in d u stria l s ta tis tic s
in th is section are based on inform ation from the Census of
M anufactures fo r the years 1939 to 1947.
Since the type of operations most frequ ently encoun
tered in the m etal products fab ricatin g p lan t are stamping and
machine shop work, the stamping and machine shop in d u stries
were selected fo r analysis. Although there was an abundance of
data available fo r in d u stries m anufacturing specific products
(e.g. p a ils, stoves, measuring instrum ents}, none was available
fo r p lan ts m anufacturing the product considered in PART III.
The data fo r in d u stries m anufacturing sp ecific pro
ducts have not been included since it is believed th at these
data are sig n ifican t only when the planned business w ill manu
factu re one of these products. I t is also believed im portant
to study the stamping and machine shop in d u stries since i t is
hoped th at the planned business w ill expand su ffic ie n tly to be
able to manufacture a wide variety of products requiring p ri
m arily stamping and machine shop work.
^U. S. Department of Commerce, Census of M anufacture s,
published p erio d ically since 1809.
3.
Expansion R atios
The data tabulated in Table 1 in d icate th at in the
year 1939 the stamping p lan ts and machine shops comprised 11.7^
of the to ta l number of establishm ents engaged in the m anufacture
of machinery and m etal products, but they comprised only 1.6^ of
a ll m anufacturing in d u stries. In the year 1947, the stamping
p lan ts and machine shops comprised 11*4^ of the to ta l number of
establishm ents engaged in the manufacture of machinery and m etal
products and had 4.0^ of a ll employees. Also in the year 1947,
the stamping p lan ts and machine shops comprised 2.1^ of a ll manu
factu rin g In d u stries and employed 1.3^ of a ll employees. As fo r
the p o sitio n of m anufacturing in our n atio n al economy, in 1939,
m anufacturing establishm ents of a ll types comprised only 6.2^
of a ll business establishm ents, but employed 42.1^ of a ll
employees. 5
Both the stamping p lan t and machine shop in d u stries
showed l i t t l e change in the years 1937-1939, but tremendous
growth occurred in the period 1939-1947. This can be seen in
Table 2, in which the values are ra tio s of the s ta tis tic s in
Table 1. Although there was approxim ately 25^ increase in the
number of establishm ents from 1937 to 1939, the number of em
ployees, wages and sa la rie s, and value of products remained a l
most constant. This would indicate a decrease in the size of
Based on to ta ls for m anufacturing, service, whole
salin g , re ta ilin g , and construction establishm ents, and h o tels
and places of amusement. B u lletin of the Ü.;S. Department of
Commerce, Bureau of Foreign and Domestic Commerce.
k.
TABIÆ 1
TABLE 1
Number of Establishments, Number of Employees,
Wages, and Value of Products for Entire Industry
Total Total Total of Total , Total of Total Cost of Value Value of
Number Number of Salaries Number of ; Production Materials, Added by Products
of £hç>lqyees and Wages Production • Workers ’ Supplies, Manufacture Slipped
Estab (§1000) Workers Wages Purchased ($1000)
Industry Year lishments 1 (§1000) Energy, Fuel,
and Contract
Work ($1000)
Stamping 1947 1,981 132,011 388,038 113,976 301*, 120 521,816 61*2,1*83 1, 111*; 299
Plants 1939 655 33,112 .37;535 — 89,11*1 89,251* 178,395
1937 527 31,905 37,788 ' ' - — ' 88,200 78,662 163,862
—
1939^ 965 - 57,182 69,978 158,082 168,209 326,291
—
Machine 1947 3,112 58,l6o 161,972 ^8,638 126,009 138,391* 271,870 1*10,261*
Shops 1939 2,125 60,717 81,660 11*1,1*93 218,81a 360,33!*
1937 1,626 65,370 91,911 a. I53,9g 228,290 382,255
1939a 1,325 2lt,333 32,076 1*8,566 82,106 130,672
All Metal And 1947 lUt,923 1*,731,820 3,871*,877
Machinery 1939 23,675 1,86b,519
Industries
Fabricated 1947 16,73b 971,1*61 822;5H*
Metal 1939 9,532 1*51,087
Products
Industries
Machinery 1947 17,906 1,51*5,323 i,2l*l*,l35
Industries - 1939 8,86o 536,082
Other than
Electrical ,
Electrical 1947 10,283 2,215,036 1,808,228 _
Machinery , 1939 5,283 877,350
Transportation
Equipment, and
Instrument
Manuf acturer s
All 1947 21*0,881 H*,29l*,30l* 11,916,188
Manufacturing 1939 173,802 — — 7,808,208 --
. — — —
Industries
(a) The types .of establishments included in the categories of "standing
plants” and "machine shops” was changed slightly in 19kl from that of
previous ye^s. Data for- 1939a are for establishments which satisfy
the classification for 19h7* Thus, althou^ there were 6$$ establish
ments in 1939 classified as "staining plants”, 965 would have been in
#iat category in accordance with the 1947 definition*
