FINANCIAL COME – BACK

NZ Truth, Issue 1229, 20 June 1929, Page 22

FINANCIAL COME - B ACK

' ' (By "Fiat Lux.") , t, =?\' ■' The Farmers' Trading Coy., Limited, of Auckland, ' has registered a wonderful year ending March 31 last, affording proof to the most sceptical that, financially, it has come back to stay hack.

ITS 8/- ordinary shares are rightly at a small premium on 'Change and investors who favor this class of investment would be wise to buy now as these shares will surely increase steadily m value. Following the usual practice when this firm's accounts are reviewed m these columns a comparative statement is. published showing- the. difference between the 1928 and the 1929 profit and loss account items. The outstanding feature is the advance of £15,111 m the gross earnings. The term "gross earnings" is not really correct since it includes only the Auckland gross earnings and the net profits from the branches and factories. ; Up to two years ago the firm showed m its published accounts the separate earnings from these various sources; the figures were very interesting and it is to be regretted that the old practice has been abandoned. However, so long as a basis of comparison can be arrived at the public can figure out the advance made by the company from year to year as shown by the disclosed figures, which, of course, do not, m some companies, always show the whole profits made. It is but natural for a concern to put something extra under* the clock m good years m the shape of excessive provision for bad debts, depreciation of plant and properties and similar items. Regarding this point m relation to the company under review it is open for interested persons to draw their own conclusions. This writer is of opinion that the 1929 accounts make' a conservative disclosure of profits which is, perhaps, a wise policy. The expenses for the year at •£186,345- show an advance of

The writer considers the ordinary 8/'- shares of this company a very good investment with splendid prospects oi capital accretion within a lew years and m the meantime a steady 10 per cent, dividend. Having: dealt briefly with the firm's trading* results for the year, let us now pass on to the consideration of the balance-sheet for March, 1929. Apart from the interest which attaches to the comparison of the various figures for 1928 and 1929 the point about this balance-sheet is the large amount of liquid assets disclosed. This means that the company is free to develop its business along those lines which may at any given time offer the most remunerative, returns. Excluding mortgages due by the company, mortgage debentures issued and fixed deposits accepted — because this writer classifies, these items as fixed liabilities — the surplus of liquid assets over liquid liabilities amounts to £403,650, an increase on tho year of £50,293. To a casual observer it might, perhaps, appear that this result is due to the firm obtaining an additional £68,512 on fixed deposit during the year, but this is not so, as this money, and more, was used to reduce mortgage' debentures by £26,733 and to pay off the bank overdraft of £52,114. The management improved the firm's cash position beyond recognition during the last three years. For instance, at. March 31, 1926, it owed £77,000 .on mortgages, . £319.000 on debentures and £108,000 to the bank, a total of £504,000. This year these obligations. have been reduced to £298,900, to which has to be added £130,000 of additional funds

FARMERS' TRADING COMPANY, LIMITED. Condensed Comparative Balance-Sheet, March 31, 1929. ' LIABILITIES. ASSETS. Capital paid up 318.232 *14,2n Properties less Forfeited shares res. 1501. *70 £ 14,750 reserve . . 374,775 *10,439 Insurance reserve .. 1000 — Plant, fittings, etc: 51,694 *784 Profit and loss' 74,534*10,924 Office furniture ... .'. 5732 *1927 — : Motors .• 6395 *242 395,21)7 '25.205 Mortgages ......... 21,000 t4186 Mortgages 64,536 t1255 Stocks 309,065 *4155 Mortgage debentures 234,387 f26.733 Bills receivable .... J SBB 1 166,1 Bank — T52.114 Secured loans 6312; t424 Fixed -deposits 169,054*68,512 Time payment deb- 7 Customers' balances 92,122*20,256 tors less £25,000 Bills passable 11,606 *3942 reserve 136,738 *14,211 , Accrued charges 6146- tlo4 Merchants 17,278 t5068 Creditors 67,053 *5370 Debtors at branches 65,117 t4405 Bank * 22,810 *22.810 '• ' ■ . Cash and adv. payts 21,559 *4255 £1,040,171 *43,.079 £1,040,171 .*43,079 Note: * Indicates increase and f decrease compared -with last year's figures.

£8338, so that, of the £15,111 of additional profits, £6773 remains as net profit available for distribution, the total net for tha year . being shown as £49,335. This is a very fine achievement and when added to the undivided balance of £30,094 brought forward from 1925, makes a total of £79,428. The firm's dividend requirements at 7 per cent, on preference and 10 per cent, on ordinaries will absorb only £25,250. In addition, the directors propose to transfer to buildings' depreciation reserve a further £2750 (bringing the total up to £17,500) and after providing for income-tax (m the region of £12,000) to carry the balance forward to the next year's accounts. The amount should be about £40,000 and alone will be practically sufficient to ensure payment of the current year's dividend, apart entirely from, the current year's earnings. ■ Although no offer has yet been made to the general public (lie present shareholders have been given the opportunity of participating m the new issue of shares,' which is being made for the purpose of providing funds to pay off. £128.787 of debentures, which mature m 1930. The present proposals cover the issxie of £50,000 of preference shares and £50,000 of ordinaries. The chairman m his report scores heavily m favor of the new issue when he points out that the present rate of the company's earnings is ample to meet the additional dividend on tlie new issue without taking into account the fact that some £6500 per annum of debenture interest will be saved to the company by the maturing of the debentures. This explanation should serve to instil confidence m the venture m the minds of those who are still hesitating about putting 'their money into this concern.

raised by way of fixed deposits, making £428,900 m all. Thus m the three years the cash liabilities position has improved by £74,200, and m addition a credit balance has been established at the bank amounting to £22,810. Regarding the firm's assets the principal alterations for the year consist of the creation of the credit at the bank mentioned above. Then there is a net increase of £14,211 iri time-payment' accounts which total £161,738. Against this the firm has created a reserve of £25,000. of which £2500 was set aside out of the profits of the year under review. In the writer's opinion this reserve is extraordinarily high, and if it is based upon past experience of the firm then "Fiat Lux" would - say the firm has been very unlucky indeed m this branch of its business. In. connection with debtors at branches which aggregate £56,088, a reserve for bad and doubtful accounts of £20,971 has been built up during past years. The basis of this provision, the chairman stated m his report, was 20/---in the £ on all accounts., over 12 months old and 10/- m the £ on accounts between 6 and. 12 months old. Including building depreciation reserve, £14,750. and the above items the firm thas visible reserves totalling sorne £62,371, but owing to stating the items ! by deduction from the assets th"* full significance of the items is lost: . . While the writer cannot see eye to eye *with the policy of raising share capital and fixed deposits to pay off debentures — these are only minor points-T-the main thing is that the firm is to-day sounder financially than this critic has ever known it to be, and its prospects are brighter than for years past.