A CREDITABLE ACHIEVEMENT

NZ Truth, Issue 1185, 16 August 1928, Page 16

A CREDITABLE ACHIEVEMENT

Jnanetal^evtews

Farmets* Trading Company, Limited, Showing The Way

FINANCIAL DRIFTWOOD SWEPT ASIDE

" . (By "FiaJ Lux.") ' - There is genuine merit m the record of the Farmers' Trading Company . Limited, of Auckland, which, even four short years ago, was m difficult financial straits; it sensibly used the axe to clear away the financial deqd r toood and for 1926 paid 4 per cent., 1927, 8 per cent., and 1928 8 per cent, again, r»ith substantial, but unexplained, additions to its reserves..

•TAKING into consideration the fact J. . that on March 31,. .1925, the.company itself was serioiisly embarrassed and had to • put its own house m order, then add to those profound difficulties the fact that trade ' Within the Dominion has been sorely depressed until a few months ago, and the magnitude of the task, so splendidly achieved by this organisation can dimly be appreciated. The Farmers' Trading Company's management,' . realizing the effect of their 1924 position on their shareholders, boldly took the axe and trimmed ■; approximately a > quarter of .a million sterling oft! their accounts; this writer doubts whether there is today a sounder or' more" enterprising venture of- its kind iin the Dominion. The firm's profit and loss account for the year ended March 31, 1928, is appended; alongside the figures are the increases or decreases as compared with the 1927 figures. - I-' From this' comparative profit -and loss statement, it will be observed that this y,ear f s declared profit, at £42,562, is £7,654 behind last year's net disclosed earnings. In addition, however, to this dis-

which, at this figure, was £2738 better than m 1927. . Then salaries and wages decreased by £1511 to £77,422. Despatch and cartage showed a saving of £126, while on net mortgage interest £86 less was paid. The disclosed gross profits of th.c head office In Auckland, plus the net profits of the branches and factories, amounted for the year to £ 221,169, which was ,£ 8655 behind .the disclosed figures t<o 1927,' but— this writer lias said his piece on the point. The balance-sheet disclosed a very satisfactory position, indeed, and constitutes a distinct improvement over that of 1927. The nominal capital; which, at the end of 1925, stood at £1,000,000, was subsequently reduced to £543,634, by writing off -accumulated -losses out of i the amount paid up. , I To-day the "paid-up capital amounts I to £304,021, being an increase over last year, of £ 679, representing calls paid m the interim. . The present subscribed capital ' amounts to £ 305,199, made .up of [ £129,708 m 8/- ordinary shares; £134,-

FARMERS' TRADING COMPANY, LIMITED. • Condensed Balance-Sheet, March 31, 1928. "■'•■■■■ LIABILITIES ASSETS ■■-,•'■ ' : ■■■ ' .'. & "';.& • . ■ ■ ' .- £ & Capital, paid-up .. 804,021 • 679 ; Properties, leas Forfeited 'shares re- . £9750 reserve ... 364,334 + 6,618 ' serve .. .. 1,431* 159 ' Plant, fittings, etc. .... 50,910* 467 Insurance reserve • • > 1,000 — 'Office furniture > . ( 3,805 t 189 Accrued expenses re- Motors ... ■[.., 6,153 ♦ 751 serve .. ■ „., 6,250 t 1,557 - Mortgages •.. „; 25,186 t 2,377 Profit and loss V'\... ■ 63,610*16,870 Stocks. ..• .; 304,910 t47,716 r , , .. L. __. 'Bills receivable .. '3,249*2,669 Shareholders' funds 376,312 *16,151 Secured loans .., 6,736 ♦ 3,288 ' Mortgages '.. '.. 65,791 t 6,103 Time payment. debtMortgage debentures 261,120 t27, 550 ors, less reserve ..122,527 • 6,182 Bank .(secured) .. 52,114 +62,189 Merchants .. .. 22,346*8,492 ' Fixed deposits .. 100,542 * 5,856 Debtors at branches. Customers' balances 71,866 • 9,062 ■ less reserve .. 69,522+19.379 Bills payable ... '7,664 + 3,973 Cash and advance Creditors' ...i h ., 61,683*16,193, payments .., ... 17,414* 877 /. : £997,092 +52,553 £997,092 f 52,553 •Note: * Indicates increase and ,t. decrease compared with last year's figures.

; -ciosfed profit of £42,562, it is found that certain of the company's reserves have enjoyed unexplained increases during the year, totalling no less than £21,616. - 'This amount should* therefore, be added to the disclosed .net profits to arrive at the true n€"t for the year, which, on this basis, would appear to be £64,178, an increase of £15,932 over the 1927 disclosed total. V . As the amount the company requires each year to meet its 8 per cent, divi- . dend on its greatly reduced capital is only £20,500, it is clear that its earnings for the past year are equal to approximately. 2 % times its dividend charge,' after allowing for income tax, which has to be met out of the appropriation account. /It would appear to be most opportune to build up reserves further to consolidate the company's affairs. ' \ , Even so, there 1 ; is no reason, why these reserves; should not be built up by regular transfers from the appropriation account, so that shareholders might know reasonably "well what the. actual results are, instead of the method , followed at present, which,

916 m 17/- "A" preference shares and ! £ 40,575 m. 14/- "B" prefer ehce shares. Uncalled capital amounts to £756, whilst calls m arrear are insignificant at £595. '- ■„..-..■ The unissued capital totals £238,435, and, no doubt, as conditions become easier with the farming community, this capital will 1 be placed and the funds used either to extend the business, or, better still, to wipe out the mortgage debentures or fixed deposits, of which more anon. During the year further clearing 1 up of the share register has been effected, the result being that shares have been forfeited upon which £ 159 had Been paid; this. sum has now been added to the forfeited shares reserves account, bringing it up to £1431. Mortgages now total £65,791, having been reduced by £ 6103, whilst mortgage debentures have decreased' by £27,550 and now stand at £261,120. The bank overdraft, which figures at £ 52,114, was ; £ 62,189 greater last year, whilst bills payable, at £7664, have also been reduced by £3973. ■ The reductions m liabilities amount to the very handsome total of £99,815, but are offset to the extent of £31,111^

'•••■• ■.;-■■ ." • ■ '■■■ ■■• -"■ ■ •■'■ '■■■ „V'- ■ ■ •• ■ ■• : - ■' • - Condensed Profit and Loss Accotint, March 31,1928. Despatch ; ai^d cartage 8177 i f126 •' By gross profits of Catalogue and postage. 9624*1544:. Auckland and net Directors' fees and exes. 1174 *32 ; profits : of branches Insurances ...'..?...... 1564 . *321 and factories '..;.'... 221,169 t8655 v Int. mort, net •: 2029 tB6 .'-.'•! Int. on debts, etc. .... 13,374 f2738 ' • ■ -: , Stamps, . rates, audit . /> ' ' : fees, etc. .± . 14,186 «47 r ; Kepairs, main., print- , ing, advertising, legal, - • ketc. .......... i...... 39,906 *355 r ; j Salaries, wages, etc. .. 77,422 f 1511 ' . V Depreciation .J. ...... ;•":/" 523.6 *127 ; : Bad debts ............ ; 5915 *1064 ,- , ' . Total expenses ........ 178,607 t?7l .-•■•< ' ; Net profit ...... ;.,.,.... 42,562 t7684\ ' , fl ' ' ■■'■:. £221,169 t8665. * , , , 1 £221,169 t8655 Note: * Indicates increase and f decrease compared with last year's figures.

whilst undoubtedly conserving shares .holders 1 interests, serves also to keep them m the dark about it. ■ - The ultimate resiilt is eminently sound, but this writer dislikes ... the method used to obtain that end. y . The comparative statement shows that of the eleven sections into which the expenses, are divided, seven' of the sections -show increases compared with 1927;- '. ;■. :.• ' „ ■ ■■:■-•:■• ■, " ; ' r This lends considerable weight to contention of "Fiat Lvx 1 ' that only a portion of the profits are disclosed, since increased earnings would necessarilype followed py increased expenses.' ■..''•• The biggest individual increase is found m the item, "Catalogues and ! postage," which, at £962"4, is £1544 more than m 1927 and about ahead "of - the amount spent on this item m 1925. • • ' ' This writer believes the money to be very well spent, since it must be,responsible for a huge volume of busl»ness from outlying places. .. Who has not experienced the joys of shopping lier medium of an illustrated catalogue? \, The next largest increase is m bad debts,, which, at £5915, Show an advance of £1064 over 1927. . With a turnover for exceeding the, million, this is an almost" ridiculously small amount. The firm must possess a geniiis iri : the ': person' of a credit, manager, surely! The- other expenses which show. ad-, vances over 1927 are.repairs, maintenance, printing, advertising and. legal, £39,906; increase, £355; insurance, £1564, an inCreaseof £321; depreciation, \£ 5236, increase £127; directors' fees and travelling expenses at £1174 show an increase of £32, whilst the last of the increases is one of £47 m stamps, ■ rates, audit : fees, etc., which totalled £14,186. Thus the gross increases for the year amount to £3490. The items which decreased are four m number and the principal , one was interest oh debentures (£13,374),:

I■■ f ■ ■ ; making a net. decrease m liabilities of £ 68,704. •• . The first item '■• of . increase is i fixed deposits, which now total £100,542, being, £sßs6 m advance of 1927. . To "Fiat Lux" this matter of trading concerns accepting moneys on deposit is very, unsound financially and should be positively prohibite;d by statute. ■'■ '' ■ The other' items of increase include fi^oo 1 " custom ers' balances and £16,193 m trade creditors' accounts. It has been pointed out exactly how the outside liabilities have been decreased during the year by £68,704 and it is very interesting to observe that this improvement m .the position has been brought about principally by reductions m stock on hand (£47,716) and debtors at branches (£19,379). Other assets have decreased and some^have increased, but the two principal changes are those referred to above. . '. „. , . Just a word of explanation regarding the .reserves, which have already been referred ' to. These are what are known as specific reserved, i.e., reserves for a specific purpose; and they have been deducted m each instance from the asset, they' have been created to protect; therefore, 'the assets appear m the balance-sheet at £47,900 less than their total book value. Shares m this concern are now 'worth, well over face value and 'this writer will be very surprised if , the company does not commence issuing bonus, shares within a very few years*