PROFIT LIMIT ANOMALY

Auckland Star, Volume LXXIII, Issue 167, 17 July 1942, Page 3

PROFIT LIMIT ANOMALY

New companies which have had no opoortunity of building up reserves would find themselves at a serious disadvantage under the plan to limit profits to 4 per cent, states a Sydney financial writer. One company, established nearly forty years ago. has a paid capital of £236.000. and the shareholders have received handsome dividends for many years, but the company's product, not strictly essential in war-time, has been in such strong demand that reserves have been built up to over £ 300.000. so that the company would be allowed to make 4 per cent on £536.000. or just, over 9 per cent on paid capital. On .the other hand, another company, established in 1938 to strengthen an industry doing essential war work, has a paid capital of £140.000. but after payment of dividends, which have never exceeded 8 per cent, thousands of pounds of potential profits have been "ploughed, back'' to provide lor expansion. No reserves have been accumulated, however, and net profits under the proposed scheme would be restricted to a bare 4 per cent on paid capital, while the development of the industry would be hampered.