THE PROFITS OF INDUSTRIAL COMPANIES.

Otago Daily Times, Issue 17936, 15 May 1920, Page 10

THE PROFITS OF INDUSTRIAL COMPANIES.

TO THE EDITOR. Sib,—As a shareholder in eercral,, looal industrial companies may I*be privileged to make a few remarks regarding the parsimonious distribution, of profits to shareholders and the persistent hoarding up of funds? It must be borne in mind that a very largo number of shareholders in companies of all descriptions are largely or entirely dependant for a livelihood on the amount they receive in dividend* from these companies, and what, may have been a satisfactory return previous to 1914 is now quite inadequate as a result of the largely increased cost of livjng. The directors of many of ouir companies may not feel the pinch in that direction, but there are many who do. It m/uet not be supposed that I overlook the neoesaity of stabilising reserves in reasonable proportion, to a company's liabilities or of making provision for depreciation and reneiwaJs, but my complaint is that shareholders are not getting a reasonable proportion of the profits earned, that there is a decided tendency to hoard up reserves in the interests of posterity, and that during this process many shareholders arc compelled to sell their , holdings and seek a more remunerative source of income. I may give an instance of one company that may serve to elucidate my contention. Going back to 1911 this company paid 6 per cent.; in 1912, 5 per oent.; in 1913 and 1914 no dividends were paid; in. 1915, 5 per cent.; in 1916-1917, 6 per cent.; in 1918, 7 per oent.; and in 1919. ] 0 per oent., or an average over nino years of 5 per oent During this time a good l deal of the company's profits was spent in plant and building, and the writing down was not ncglccted. The company now produces a balance sheet showing acaretions to war loan over a period of two years of £34,000. Tho writing down of plant, opart fxwii stock, over the same period amounts to £12,000; sundry debtors increased by £10,000; full provision has been made for income tax and something 1 to spare; £5000 has been set acide as a staff fund (this is more than equal to half the amount shareholders will receive as interest on their ca/pitaJ for the year); £10,000 is earmarked for the enr-atkm of m reserve for extensions and new plant. If company directors have in view an increaiao of plant audi extension of ttaair btismees for the purpose of increasing production and improving the company's business, I maintain it should be dono by an increase of capital so that a re a ran able proportion of the earned profits of a business may bo distributed amongst the shareholders It really looks like a question of the survival of the fittest. The following generation of the shareholders' children or grand-children may live to secure the benefits accruing from this accumulation of profits if it is not ultimately swallowed up by an undivided profit tax suoh afi that recently introduood in Australia. It is time shareholders in romo of onr local companies -woke up and took a keener interest rn tho appointment of their directors. Unfortunately the annual meetings aro usually M at a 4 ,ime that makes it inconvenient or ahmoet impossnblo for tho majority of onr citv shftreholdcra to attend. There is room for further criticism of the management of public oomryraiea and the proaent System of taxing profits, but I may be permitted to roturn; to the subject on eome future ooeoakm. —I am, etc., Shareholder. DtaiciKit, May 14.