Financial Reviews LOOKING IT OVER

NZ Truth, Issue 1151, 22 December 1927, Page 14

Financial Reviews LOOKING IT OVER

The Golden Coast Co-operative Dairy Company, Limited, of Reef ton POINTS FROM THE BALANCE-SHEET

(By "Fiat Lux.") One of the crying needs m the Dominion's dairy industry today is standardization of statistics and published accounts.

WHY co? asks the curious one. The answer is because without stan-

dardized accounts there is practically no basis upon which to compare the results of one dairy factory with another.

In Taranaki, the pioneer dairying province of New Zealand, however, these remarks do not apply simply because the leaders of the industry there realized many years ago the importance of standard accounts for all dairying companies and their plan "vras put into operation as from July 1, 1925 by the Federation of Taranaki Cooperative Dairy Factories.

Consequently It is now possible with the majority of dairy companies' accounts emanating from Taranaki to accurately compare one year with another and to compare one oompany's accounts with another company's accounts and to know , ;

that the basis is exaotly the same m each instance. In the standard accounts recommended by the

Taranaki Federation the profit and loss account is correctly divided into two sections.

The first portion is termed not profit and loss account, but "manufacturing and marketing account." This portion is again subdivided into three main sections each of which is built up of a variety of relevant items. The three sections comprise: (a) Cost of milk (or cream), (b) All manufacturing and other charges up to F. 0.8. (o) All charges from F. 0.8. up to and Including realization. Each section is built up with a wealth of detail which makes It possible and no doubt also profitable to work out a comparison of costs per pound of product for comparative purposes with other factories. Thus if it Is shown that fuel and power costs one factory much more than it costs other factories then that item of cost can be thoroughly investigated.

It might be found that the boiler was very heavily scaled or that the whole plant was worn out or that unsuitable fuel was being used.

Take another charge such as interest,

This is an item which generally is passed without notice by shareholders. Yet, if they were told that their concern was paying money away m interest over one half-penny per pound on every pound of butter manufactured by their oompany they would see to it that the management was altered ao that this rate was either reduced or wiped out 'entirely.

This scribe wonders just hoir many of the Golden Coast shareholders- realize that over %d. per pound of the butter manufactured by their company during the last season has been paid away m this manner.

The instances quoted could be continued ad infinitum; but sufficient has been stated to point. the necessity for better things m the presentation of proper accounts for the dairying industry.

The second portion of the Taranaki Federation's stand-

ardized profit and loss account i s termed "appropriation account" and it contains all items not directly

chargeable to either manufacturing or marketing such as the ohairmai\'s honorarium, directors' and auditors' fees and interest on share capital.

Regarding the credits m the manufacturing and marketing account these show separately the realized price for butter, cheese,

rents, commission transfer fees and

net profit on the trading store.

Many faptories now run a general store In conjunction with their other activities. It Is absolutely essential that the details of such trading should be shown separately and only the net result be brought into the general account as provided m the Federation's splendidly devised standardized accounts.

These could with the greatest advantage he adapted by every dairy factory company m New Zealand.

The Golden Coast Co-operative Dairy Company Limited has been m business only five years and those years have not been good ones for the industry m general.

The past season was a particularly poor one and this concern finished up showing a loss of £665, which is actually overpayment to suppliers for the.

Standard Accounts

Summed Up

period. As there was a substantial ballance, however, m the profit and loss brought forward from the 1926 season the amount will not require to be deducted from the 1927-8 season's returns.

The paragraph m the annual report dealing with the matter of prices for the past season is ap epic and indicates very clearly that the American manufacturer who keeps the price of his product up on the local market and exports at any old price cannot teach the New Zealand farmer much about price manipulation. Here is the paragraph m question. "Owing to the prevailing low prices quoted on the Home (English) market, coupled with the uncertainty of thft Control Board's success many factories directed their attention to the disposing of as much of their output on the local market as

possible, In many cases cutting prioes m their effort _to do so and rendering it impossible to

maintain prices beyond export parity. Thus you will readily agree that the prevailing conditions as experienced during the past season have been abnormal. . . ."

Well, Mr. and Mrs. New Zealand you know now that you are expected to pay above export parity for all your butter, but it Is seldom one sees it put Just as plainly as this.

Thank goodness, the law of supply and demand ultimately wins out against the cleverest price manipulators.

The company's balanoe-shcet of June 30. 1927, discloses a reasonably Batißfaotory position considering that the concern is only five years old. It is, however, woefully short of capital and m consequence, has to lean on the bank to the extent of £15,813, praotically the identical sum of a year ago.

The company's nominal oapital is £16,000, but of this only £7382 is subscribed. £6260 has been paid .up leaving £ 1182 of unoalled capital.

During the past season the paid-up oapital has increased by only £343 and whilst admitting the season has been a very poor one for the dairy farmer,

"Fiat Lux" Is of the opinion that steps should be taken to place further shares and to get the whole of the uncalled capital m.

The company is paying . out over £1000 per annum m Interest which is a very heavy drain upon the year's income and materially affeots the payout.

The position m a nutshell Is that the company's assets total £ 24,409 towards which shareholders have contributed capital and reserves amounting to £7396, thus leaving bank and creditors to find the balance of £17,014 which makes the concern decidedly topheavy.

Book debts amount to £6218 which is an increase of £590 on the flgureß of a year ago and actually amounts to over. 23 per cent, of the value of the whole of the season's output. As no details are supplied m the published accounts it is difficult to express a definite opinion as to what the bulk of the amount is for; probably it is unpaid purchase money on local sales. In any ease the amount is entirely out of proportion to the company's trading resources and the maintenance of this balance is costing the shareholders over £40.0 per annum m interest alone apart from the high probability of bad debts for which the very small provision of £100 has been made. The lay-out of the balance-sheet leaves much to be desired sinoe plant, machinery, buildings and land are all entered In one lump sum as "property." Depreciation at the rate of 5 per cent, per annum on the reducing balance has been written off. This means, it will take approximately 35 years to write these assets off the books. This writer wonders mildly if the plant and maohinery will last that long and if not where will the funds come from to purchase replacements. Posterity will surely have to face a legacy of debt m this connection