THE HELPING HAND

NZ Truth, Issue 1146, 17 November 1927, Page 4

THE HELPING HAND

Financial Reviews

Profit and Loss

Summed Up

Business of New Zealand Guarantee Corporation, Limited POINTS FROM THE BALANCE-SHEET

UN F O H T U - *< NATELY, how- | ever, its well- = merited success has| been directly res- 1 ponsible for th c § creation of num- 1 bers of similar con- | cerns, a great many 1 of which have been | conceived purely m 1 a spirit of cupidity, | and lacking as they = do that all-power- I ful factor for sue- 1 cess m mod c m itii commerce — real

service to, the public — many must fail. I Such failures, when they do occur, cannot be attributed to any inherent defects m the principles of time-pay-ment finance as practised by the New Zealand Guarantee Corporation, Ltd.' Rather must they be laid at the door of inadequate capital and incapable management. , The purchase of certain goods on time payments is as old . as history, but the extension of the system to many articles of every-day use is distinctly -a modern development. Like many new ideas, this modern development has been sadly abused. Purchasing a house, furniture, motor truck, , piano, gramophone or other similar article on time- payments seems all right, particularly when you take into account the big initial capital outlay otherwise required; but to purchase one's every- _____________

day clothing requirements, such as boots, shirts and underclothing, on this system is surely abuse. The firm's profit and loss account is still published m a most unsatisfactory form from the point of view of

a potential Investor. The trouble is that the working expenses, including salaries, commission and outgoing interest, are all bulked into one amount.

In consequence it is not possible to do more by way of comparative comment than to point out that m 1926 the total expenses amounted to £22,563, which was equal to 43.55 per cent, of the gross income. In 1927, however, the expenses had risen by nearly £2000 to £24,521, equal to 48.77 per cent of the gross^ income.

This rise of 5.22 per cent.- m expenses surely merited some reference m the annual report, which is unwarrantably silent on the point. \ The profit and loss expenses being lumped together and the report being silent regarding this increase m expenses, "Fiat Lux" can only point out that m his opinion a firm which has enjoyed four years of successful trading should be registering a reduction m the ratio of working expenses to gross income, and failure to achieve

this is likely to cause adverse comment. I The directors' report indicated to shareholders that the adverse financial conditions ruling m the Dominion throughout the year necessitated the following of a somewhat -cautious policy and resulted m a certain restriction of business. The published figures, however, show that the gross earnings amounted to £50,274 against £51,794 m 1926, a. reduction of only £1520. The firm's net profit, however, Buffered a reduction of no less than £3478, the net return m 1926 being £24,629 against £21,160 m 1927. This reduction is accounted for by the £1520 fall m the gross earnings and £1968 rise m the working ex- 1 penses. During the three years ended August 31, 1927, this firm has distributed to shareholders no less than £54,486 m dividends, placed £5000 to reserve, and has written off preliminary expenses £14,739, making a total of £74,224 of net profit disposed of. The rate of dividend paid for each of the three years „

has varied on the ordinaries, but on the £20,000 of preferred capital the fixed 7 per cent.

has been paid. For 1925 the ordinary dividend was 10 per cent, on the fully paid-ups and 6 per cent, on the par,tly paids, which were evidently entitled to a return for only part of the year. For 1926 all the ordinaries shared 10 2/5 per cent., but for 1927 this rate was of necessity reduced to 8 1/3 per cent., which m all the circumstances must be accounted a good return. The nominal capital of this corporation is £500,000 divided into 20,000 7 per cent, preferred and 480,000 or-

dinary shares. * The preference shares are fully subscribed and paid up, and of the ordinaries 4000 are fully paid up; 475,975 of the remainder are paid up to 8/- each, whilst for some extraordinary reason 25 ordinai-y shares remain unallotted. The total capital called and paid up at date amounts to £214,390 and there are no arrears of calls. On the contrary, calls have been paid m advance to an amount of £760. The net amount of uncalled capital available to the corporation at date after deducting the call money paid m advance is the tidy sum of £284,850. As the bank overdraft amounts to £36,558 (last year it was £103,545), it would m an ordinary trading concern be good business to call up further

iiiiiiiiiiiiiiiiiiiiiiiiMiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiitiiiiiiiiiiiiiiiiiiiiiiiiiimiiitiiiii, (By "Fiat Lux." \ The satisfactory fourth an- i nual report and statement of \ accounts issued by the New I Zealand Guarantee Corpora- i tion, Ltd., for the year ended i Auaust 31 last clearly demon- ! strates that this well -managed j and adequately-capitalized pio- j neer finance concern is giving j real service to the community j and has come to stay. [ miiiiiiiiiiifiiiiiiiiiiiiuiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiimiiiiiimiiiiiiiiiiiiiiiiiii :

c- capital, but with a h finance corporation I totally different 1 considerations rule I the position. 1 The primary con--1 sideration is to I maintain an elasI ticity m oash re- | aource3. = This does not Imean that a credit | balance must b c I maintained m the | bank account, but s. it does mean that readily realisable

security must be available when required to lodge as security for bank advances. v In the case under review after the corporation has advanced to its clients the whole of its own available cash it is able to get what additional funds it may require from its banker by lodging securities, including its uncalled capital. Now upon this uncalled capital the shareholders get no return whatever, the only expense to the corporation being the interest to the bank on the overdraft, and the amount of such overdraft is strictly limited by the corporation to the amount upon which it can reinvest at a decent profit. As will be seen from the comparative balance-sheet published herewith, the Corporation's ad-

vances this year are £55,818 less than at August 31 last year, and if the necessary capital to finance fully last year's advances had been called up, then £65,818 would have, been lying idle this year, with consequent

loss to shareholders. A further unsatisfactory feature about working finance concerns entirely upon shareholders' paid-up capital is that when such funds are lying

idle there is always the urge upon the management to invest m anything to get the funds* to work. Consequently it happens that the necessary discretion m choice of securities is not always exercised. Out of the 1926 undivided profits the directors created a general reserve of £5000; premium on shares reserve amounts to £15,000 and on forfeited

shares £100, so that the reserves now total £20,100, a fine achievement for four years' trading. Admittedly £15,000 of this arose from selling shares at a premium, but against this has to be set the fact that approximately £15,000 of preliminary expenses have been written off during the period out of earnings. The balance of the profit and loss account shown m the balance-sheet published herewith— £l3,B2l— lb ' the amount available prior to the declaration of the final dividend, and is

£5499 below the 1926 profits available) for distribution. j It is made up of £1470 brought forward from 1926 plus the 1927 net profits of £21,160, making a total of £22,620 leas interim dividend of £8800. The amount has been distributed as to £ 8800 by way of final dividend, a further and final £4602 has been written off preliminary expenses, leaving £ 418 to be carried forward to the 1928 period. , During the year under revie-w depositors have inoreased by £8093 to £16,114. v Again the special considerations governing finance corporations preclude this method of raising funds being condemned. The resources of the corporation are such that even though the deposits amounted to £100,000 there would be no trouble at any time m paying the amount off on demand, and therefore the investment is sound and is good business' for both parties. The bank overdraft has come down by £66,986 and now stands at only £36,559.

The sooner this can legitimately be raised to £ldo,ooo or more the better^ for shareholders, since every £100 of overdraft carries a substantial profit to the corporation. .

The outstanding- advances at August' 31, 1927, showed a diminution of £55,818 compared with the 1926 figures and can be accepted' as a criterion of the falling off m the motor trade turnover for the period due. to the general adverse conditions ruling m the Dominion during the period covered by the accounts.

That the corporation has purchased a valuable motor-car would indicate the first step m an aggressive campaign to extend the scope of its operations rendered necessary no doubt by the competition created by many of its imitators.

S.uch an investment should prove a remunerative one.

The corporation's' 8/- paid ordinary shares are to-day quoted around 8/6, at which figure they should .pfrove attractive to investors since the financial position is sotind and the prospects excellent.