Financial Reviews BLACK DIAMONDS

NZ Truth, Issue 1103, 20 January 1927, Page 13

Financial Reviews BLACK DIAMONDS

The Westport Coal Company, Ltd.

SHARES ARE A GOOD INVESTMENT

(By "Fiat Lux.") '

When discussing the Westport Coal Company's accounts m these columns a year ago this writer expressed the opinion that notwithstanding 1 the advent of hydro-electricity, successful coalproducing companies should continue to prove sound and reliable investments for generations to come.

THE published accounts of this company for the year ended September 30, certainly supnort this view. Interim and the final dividends equalled 10 per cent, and a bonus of 2% per cent, was paid, the latter being out Of the insurance fund. In addition substantial additions were made to reserves. The subscribed capital of £460,000 has remained unaltered for many years and is all paid up. It is abundantly evident from the balance sheet' that there is very little probability of the 50,000 £1 unissued shares being placed on the market as the company clearly has ample funds for all present purposes. The insurance fund now stands at £128,460, an increase for the year of £9710. No doubt these funds are specifi* cdlly invested and. the resulting interest, added to the annual charge against the profit, and loss/account provides a very handsome addition to this account each year. Against this, however, has to be set the bonus payment which has been made to shareholders each year since 1922 which is as far back as this writer's information goes. The bonus which has been paid' Is as follows: 1923 £11,250, 1924 £16,875, 1925 £11,250 and 1926 £11,250. These payments served to Increase the shareholders' return by 2jJ per cent, m each year except In 1924, when the Increase equalled 3 % per. cent. . - ; The shareholders' total funds amounted to £615,366 an increase for the year of £5792 due to the accretions to the insurance fund. The liabilities totalled £258,380, an Increase for the period of £24,500. It seems quite unlikely this sum represents ordinary trade creditors only; it no doubt includes some large amounts of balance day adjustments and provision for income tax is, of course, therein. On the assets side the property account, at £291,974, shows an increase of £11,880 for the year. ' It is interesting to- note that m 1923 the amount under this heading was £303,786. WISE PROVISION Debtors have increased slightly dming the year, the total now standing at £79,388 an advance of £5442. Although no detail of the amount set aside is jgiven, full provision has been

Many years ago the whole question ] was most carefully considered by the English courts at the instance of one Lee, who sought to restrain the Neuchatel Asphalt Co., Ltd., from distri- j buting its so-called profit* until it had provided for retaining the estimated j capital yalue of each ton of asphalt won from its Trinidad concession. The courts were unanimous m declaring that a company working a wasting asset was not bound to keep its capital intact by placing aside the estimated capital value of each unit of production. .. • No doubt this decision was influenced by the almost hopeless impracticability of correctly assessing such capital value of the ton of coal, etc.; but whatever the reasons • the result is sound. in practice. In New Zealand English court decision has been incorporated m our Companies' Act of 1908 and so places the matter entirely beyond doubt. ■y FUTURE PROVISIONS ; The provisions of our Act, however, are not mandatory. They do not say "Thou shalt not make provision for a wasting asset before declaring profits available for dividend.". They say: "It iB not necessary for companies working a wasting asset to provide, for replacement of capital before declaring a dividend." j Legal necessity and sound finance are not always synonymous and judging from the face, ojf the published accounts of the Westport Coal Co., Ltd., the directors prefer to keep . their 'shareholders' capital conserved m accordance with the approved accounting practice. N This course is undoubtedly m the best interests of shareholders. Cash on hand and-in the. bank shows a shrinkage of £10,754. The balance is ,£38,310 which is slightly more than the balance of the profit a"nd loss account. As the final 'dividend and bonus payable together amount to only £33,750 it will be seen that the company being amply capitalized can arrange, matters so that its yearly profits for dividends are available m hard cash. There is thus no question of utilizing the profits m the business and thus necessitating a bank overdraft "to pay the dividends as happens m so many cases. Dealing with the profit and loss ac-