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Chapter 9: Specific Standards for Bond Investment

  1. The Terms of the Issue: Graham notes that standards of safety should not be relaxed because of early maturity (short term bonds).
  2. The record of Solvency and Dividend Payments: Notes that dividend record is not conclusive evidence of financial strength. The evidence given by balance sheet and income account must be regarded as more dependable than dividend payments.
  3. The relation of Earnings to Interest Payments: This is the most important specific test of safety. There are three specific items of note

Attention should also be paid to trend, minimum and current earnings but no definite hard and fast rules can be applied.

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