THE MONEY MARKET.

Ashburton Guardian, Volume 50, Issue 291, 20 September 1930, Page 4

THE MONEY MARKET.

N.Z. FARMERS' CO-OPERATIVE

COMMENT ON BALANCE-SHEET.

STRENGTHENING THE BUSINESS

(Written for the “Guardian” by

“Investor.”)

The item of greatest interest during the week has been the publication of the annual report and balance-sheet of the New Zealand Farmers’ Co-opera-tive Association of Canterbury- Probably some holders of shares will be disappointed with the recommendation of tiie directors not to pay a dividend on the “A” preference shares, for those who place dividends first view matters somewhat differently from those whose chief duty it is to ensure the stability of an undertaking. The figures given in the balance-sheet show that, had the directors’ duty been simply that of distributing profits, the holders of the “A” prefs. could have been paid something, but quite clearly what they have done is to strengthen the financial structure in order that, in difficult times, the position of the big concern that they have to direct shall be equal to any demand. And sound finance, I need hardly state, demands just that course. There are many companies in difficulties to-day because, in years gone by, the directors distributed far too much and did not provide the reserves that spell stability when a time of depression comes along. The latest balance-sheet affords evidence that the directors of this company take the long view. Reserves are being built up steadily, and the policy will have a gradually beneficial effect. The net profit in 1928-29 was £50,109, and this year it is given as £19,031, but it should be remembered that, in the previous year, the sum set aside for depreciation, bad and doubtful debts, and as a reserve for doubtful accounts was only £8572, whereas for the year just closed £23,340 jjyas first deducted. That is where a substantial part of the year’s profits has gone, and the decision cannot be viewed as being otherwise than essentially sound. Allocation of Net Profits. The same policy is apparent when the allocation with regard to the net profits is studied. The special reserve is to be allotted £20,000, or double the amount so dealt with last year, while the reserve for alterations and plant again receives £SOOO, making this item now £19,000. The task that the directors have had to face has been one of steady construction, and it is impossible to judge the position correctly by studying the figures of one year only. The company has progressed 1 since it took courageous steps in 1927 to improve the capital position, and while conditions prevailing during the year have slowed down the rate of advance, still something has been done to build up the financial strength of the concern. The paid-up capital lias increased by £3OO, due to calls in arrears having been met, and the following comparison with the balance-sheet figures of the preceding j r ear may be of interest:

*Less reserves £105,402 in 1929 and £123,535 in 1930. A Sound Policy.

Clearly the accounts show that the Dominion has been passing through a time of depression. The balances of shareholders’ accounts are down about £46,000, and advances are up over £IOO,OOO. These items, less the reductions in stock and the amount against sundry debtors, practically account for the increased accommodation from the bank. An institution so closely in touch with the primary producing interests must feel the effects when overseas market conditions for our chief products are unfavourable. The one effective safeguard, in financially stormy weather, lies in the reserves, and it is clear that tho^li rectors realise that. They could have paid a dividend on “A” shares, but they preferred to strengthen the position, and the concern will benefit, together with the shareholders, in the long run. It may not be the most popular course, but it is the soundest, and in the world of finance what is sound must have precedence.

July, 1929 July, 1930 Liabilities — £ £ Capital 539,643 539,943 Calls in advance... 2,062 2,062 Special reserve ... 10,000 20,000 P. and L. Ac. ... 67,133 38,164 618,838 600,169 Convtd. bonds and dep. 892,155 888.451 Fixed deps. 38,105 41,854 Shareholders Acs. 309,266 263,066 Creditors 58,824 56,756 Accrued int. on sec. dep. stock 24,977 25,193 Unclaimed div. ... 476 358 Land tax res. 1,509 1,509 Bank 3,943 83,048 £1,948,093^ £1,960,404 Assets — £ £ Properties 393,623 388,874 Alterns. to H.O.j prems., turn., machin’y, plant 83,816 79,505 Stocks 334,642 289,011 Investments 9,773 9,773 Advances* L,048,289 1,155.042 Debtors* 174,737 148,904 Repayments 324 175 Bills receivable ... 8,291 12,654 £1,948,093 £1,960,404