SHARES & MINING

Observer, Volume XL, Issue 9, 1 November 1919, Page 18

SHARES & MINING

THE Wellington Cordage Company Limited is a small concern that has been in existence for about eight years and is run by some hardheaded business men of Wellington, who have done well for themselves. The capital of the concern is only £18,000, of which 6000 are held outside of the original owners of the concern, and the amount actually paid up is £17,610. During the year ended July 31 last, the company earned a. net profit of £1486 18s 6d. and there was brought forward from the previous year, £993 14s 6d, making available £2480 13s.

The profits of the company exhibit a contraction as compared with the previous year, and this according to the directors Avas due partly to the fact that the financial year included the period of the influenza epidemic, which was responsible for a certain falling off in sales for a few months, and partly to the considerable advance in wages. Owing to these facts the directors have reduced the dividend from 10 per cent, to 8 per cent. The business of the company is said to be in a sound condition and the finances are in a healthy state. The liabilities of the company, apart from those to the shareholders, amount to £315 2s 7d, Avhile the assets, apart from land, buildings, machinery, and plant, shoAV War Loan stock, £600; deposits with companies, £5300; sundry debtors, £1760. The reserve fund noAv stands at £2000.

The balance sheet of Sharland and Co., Limited, for the year ended August 31, shoAVs that the gross profits for the year amounted to £55,883 13s, and there was brought forward from the previous year, £6995 7s Bd, making a total of £62,878 13s. The expenses under all heads totalled £41,132 15s, there was written off for bad debts £807 9s 3d, and for depreciation, £1849 19s Bd, leaving an available balance of £19,088 9s Id. Out of this, £3500 was transferred to the reserve fund, bringing -that fund up to £33,500. The directors have declared a diAndend of 1\ per cent, absorbing £5625, and a special dividend of 2£ per cent, from profits earned by the reserve fund and absorbing £1875, leaving £8088 9s Id to be carried forward.

Thus it will be seen that the shareholders receive 10 per cent dividend for the year. Of course the payment of a special dividend of 2$ per cent. out of the profits earned by the reserve fund is camouflage. The reserve fund stands at £33,500 and only £11,500 is invested outside of the business and this latter amount is invested in New Zealand Government War Loan. The most that could have been obtained from this investment would be £517 10s, but the company did not receive that sum because £3500 was invested this year and a full year's interest has not accrued. The special dividend has come out of .war profits, but of course no concern likes to blazon that fact, for that would bring the concern into disrepute.

The company has done exceedingly well in the past year, the -ross profits being about £3000 better than in the previous year. The chemical and drug trade must have been a difficult one to handle during the war period, still supplies were obtainable from the United States, and Yankee potions and patent medicines have found a market in New Zealand. It is hardly likely that Sharland and Co., Limited have varied their policy of making certain profit on turnover

in the same manner as the drapers. The latter, according to evidence given in a profiteering case heard in Wellington add 50 per cent, to cost price, which yields a profit of 33 1-3 per cent, on turnover. Thus there is no change.in the measure of their profits, but the volume is increased. For instance an article whose pre war price was 20s, would have 50 per cent, added,, making the retail price 30s, and giving a profit of 10s.on turnover. The same article may be costing 40s which with 50 per cent, added would be retailed at 60s, leaving a profit of 20s on turnover or double the pre-war profit. Against this must be set the increase in wages and a few other increased incidental expenses, but nowhere near the increased profit made. The net prewar profit on the article may have been 2s 6d it would now be anything from 5s to 7s 6d. The volume of profit has increased although the measure has not changed.

So that when retailers say they are not getting or asking any more profit than in pre-war times they are stating Avhat is an actual fact, for as shown, above the measure of profit has not increased but the volume has, and that is not profiteering in its legal aspect. Although commodities are very much dearer and there is a continual cry about the cost of living it is. only a very few people Avho are affected, and that is mainly those with fixed salaries, who find the purchasing power of the sovereign has contracted very much. The expenditure in New Zealand to-day is on a vast scale and no price seems to deter buyers. The reason for it is that there is an abundance of money in the country and the currency is inflated. The note circulation, that is the bank notes in the hands, of the public averaged during the past quarter over. £6,000,000 or about £6 per head for every man, Avoman and child in the Dominion.

Money is a tool. It is like a wagon for it is used to shift goods from hand to hand, as a wagon shifts them from place to place. Suppose that one man had an absolute monopoly of the supply of Avagons and largely over estimated the number required. Then in order to recoup himself for making useless wagons, he would have to charge more for those actually used. The supply of money is actually in the hands of one authority the Government —and if it issues more money than is needed the users of money will have to pay for the mistake in higher prices for the same goods, or fewer goods for the same prices. As trade increases, that is, as the quantity of goods to be shifted increases, the number of sovereigns required to shift them also increases. One of the most important -functions of the Government is to issue the necessary addition to the supply of sovereigns, and, as it has to give in goods for the gold as much as it gets in goods for the sovereign, it is under no temptation, to issue more money than the markets will readily absorb Avithout affecting prices.

If, however, instead of coining gold into sovereigns, the Government is allowed to print little bits of paper and call them "pounds" the case is altered at once. There is not any profit in a sovereign, while a "note" is all profit. The Government of New Zealand has no paper currency, but it has made bank notes "legal tender" and it is probable that too many notes have been issued. Britain is making an effort to get rid of the inflation and it is to be noted that of the £50,000,000 that is being raised in New York by the British Government, part of the amount is to be used in paying off £27,000,000 of notes maturing next month. A consolidated loan is: better than floating debt or inflated currency. In Russia the issue of paper roubles has been simply ridiculous, "Kerensky notes" are tumbled about in sackfuls almost at waste-paper prices. The Russian prices for commodities and for services, bear testimony to a vast surplus of paper,

As long as all prices.', including the price of labour—wages—move in the same direction at the same rate, neither good nor harm is done to particular individuals unless their money incomes remain fixed at their former level. Falling money wages may be, observes an authority, and _ frequently are, consistent with rising commodity wages; for commodity Avages depend mainly on the output i)f goods and money wages mainly on the supply of money. This point is of great importance to-day, for Avhile no one wants to soe a fall in commodity wages, a fall in money wages may be necessary to maintain our power to sell goods in oversea markets.

The New South Wales Government, one of the most consistent and persistent borrowers on the London market, is once more endeavouring to raise £3,000,000 in the great Metropolis, but New South Wales has to pay a stiff price. The interest is 5 \ per cent., and the issue or upset price of the bonds is £98 per cent., that is a discount of 2 per cent. This is a very dear price for money, but those who venture upon the London market during the next year or two must expect to pay a stiff price. This being so, it stands to reason that borrowing locally must be more expensive. Lenders here will not be content with. 4* per cent. ; they will certainly want more, and they must get it.