Thirdly, the proportion between net quick assets and the surplus as shown in the balance-sheet. If the capital liabilities exactly balance the property assets, it is plain that the surplus will exactly balance the net quick assets. If the surplus is smaller than net quick assets, it is usually a sign that capital liabilities have been created to provide working capital. Opinions differ as to the wisdom of this course. Generally speaking, it is better to provide working capital by means of a stock issue than to depend upon the banks for accommodation. The exception to this rule occurs in the case of companies that require a great deal of working capital for part of the year and only a little at other times. If they have the best banking connections, such companies may be safe in depending upon their banks to carry them, but if they do so, they should have no bonded or other fixt indebtedness which would prevent their paper from being a first lien upon their entire assets. If working capital is to be created by the issue of capital liabilities, it is much better that it should be done by stocks than by bonds. The ideal method, however, is to provide only such an amount of working capital at the organization of a company as is necessary for the conduct of its business, and then, as the volume of its business grows, to accumulate the additional amount necessary out of earnings, refraining from the payment of dividends until the fund is complete. Before leaving the subject of net quick assets, it is well to note the importance of the figure showing the actual amount of current liabilities. If a company has outstanding large amounts of bills and notes payable, it occupies a vulnerable position. Inability to renew maturing notes was the cause of most of the industrial failures of last year. (_c_) _Net Earnings._ The amount of net earnings is of great importance in estimating the strength of an industrial company. The figures for a number of years should be examined to determine whether the earnings are increasing or decreasing, and to discover whether or not the earning power of the company is stable. This will depend largely upon the nature of the article which the company produces or trades in. If its product enjoys a steady demand at a fairly uniform price, it is justifiable that some of its capital should be in the form of bonds; but if its earnings are subject to violent fluctations due to rapid changes in the price of its product, there is little justification for conducting the business on borrowed money. In this connection it should always be considered how greatly a falling off in gross earnings will affect net earnings; and the proportion between net earnings and fixt charges should be carefully noted.