JnaneialJJeviews YEAR'S PROFITS ARE LOWER

NZ Truth, Issue 1200, 29 November 1928, Page 2

JnaneialJJeviews YEAR'S PROFITS ARE LOWER

The Drapery and General Importing Company of New Zealand, Ltd. D.LC. BALANCE-SHEET UNDER REVIEW

5 ; (By "Fiat Lux.") | TN common with most other businesses, the Drapery and j I General Importing Company of New Zealand, Limited, for J | the year ended August 31, 1928, had to report substantially | | reduced profits compared with two years ago. , | liiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiuii iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiniiiiiiiiiiiiiiiiiiniiiiiiiiiii iMiiiiimiiiMiiiMiiimniiiiiiiiiiiiiiitiiiiiiiiiiiiitiiiiiiiiif?

PVEN so, there is nothing m the Hi published accounts to cause a shareholder to go and give his shares away — or anything foolish like that — since the company paid its usual dividends of 6 per cent, on the quarter of a million of preference capital and its usual 10 per cent, on ordinary capital. In addition, the company retained the balance, of the year's disclosed net ( profits amounting to £9876, which would have more than sufficed to pay a further 5 per cent, on the ordinaries had the company so desired. However, comparing the 1928 results with those for 1926, it is shown that the gross earnings have . receded by £16,531, the 1926 gross earnings being £259,463 against £242,932 for 1928. ■ A certain portion of these lost earnings will no doubt be due to the contraction of business at the Wellington, branch where a huge rebuilding scheme is being carried out. . As it would appear to be unlikely that the new building will be ready for , occupation for many , months to come, any losses from this source m 1928 are likely to be enlarged m the 1929 accounts.. The next item of interest m this year's profit and loss account is the item of ►expenses, and following this. firm's usual practice this is shown :n one item only. It is. stated to cover salaries, fire insurances, travelling expenses, interest chai'ges, stationery, advertising, rent, land and income taxes and licenses for the year and amounts to £200,204 against £210,481 m 1926, a decrease of £10,277. Exactly how much of this is due to lessened income tax and how much to, genuine reductions- m working expenses it is unfortunately impossible to even hazard a guess owing to the objectionable method followed m publishing the profit and loss account. Probably over £3000 of the reduction is due to reductions in* taxation, leaving: £7000 as savings on working expenses. . Setting off the total reductions m expenses of- £10,277 against the reduction of gross profit £16,531, leaves a reduction of £6254 m the

£6254 Less Profits

group which have of late years been very much neglected. The reason is that people fear the day of coal is over and uiat hydroelectricity is the one and only power of the future. This writer disagrees most emphatically with this opinion which he considers is based upon lack of knowledge of developments of the multitudinous uses of coal which are being extended by science almost daily. Regarding the market price of the D.I.C. shares it is interesting to note how this has advanced during the past three years.. * • It has to be remembered that the ordinaries are of a nominal value of 10/---each only and m November, 1925, they were worth 15/3 each. By November, 1926, the price advanced to' lß/- and as a dividend of 10 per cent, was then being paid, the investors' return was £5 11s. per cent. The following year the price had hardened to 18/6 upon which the 10 per cent, dividend represented £5 Bs. per cent., whilst at the present time (November, 1928), i the price has firmed to £i- per share. \ A 10 per cent, dividend on -the nominal price now represents a return of 5 per cent; only on the market price. ■ ■ . Now let us get at the backing of the shares m thiß concern and see where they stand. The quarter of a million of preference shares are what are known as "6 per cer cent, cumulative preferreds without participation m surplus assets on a winding up." \ This means that m the event of the company being wound up the preference shareholders would receive their dividend to date plus £1 per share only, -whilst the whole of the reserves and other surpluses. would be distributed to the holders of ordinary shares. In this writer's opinion, the preference shai-es are, a very good investment, but as they have not been quoted on 'change for- some time past they must be held very tightly. For every £ 1 of preferred capital the company has no less than £2 3s. 2d. of disclosed surplus assets and to this

Note: ♦ Indicates increase and | decrease 'compared 'with the figures for 1928.

net profits of 1928 as compared with 1926. / The net for 1928 is ' disclosed at £42,728, of Which £15,000 was required to meet the .fixed cumulative preference dividend, whilst a ten per cent, dividend on the ordinary capital absorbed £17,852, leaving £3878 of the year's profits to sweil reserves and the carry fonyard of the profit and loss account. / The experience of liie D.LC. m earning less protits. yet seeing the market price of its shares rise is not at ajl singular. On the contrary, it has been shared not only by the majority of purely New Zeaian'd concerns, but also I by Australian and Jmperlai companies. The explanation is that money is cheaper to-day • than for sonic years past and investors- therefore are prepared to accept a lower return per annum on their investments provided they are gilt-edged, lie., that the capital invested is well secured. In order to test and prove the above opinion, "B^lat Lux" has made a very careful arid comprehensive sui-yey of a series of cliiases of investments for L 927 and 1925, •"•/.-■' |

The results are given below m der tail and show clearly that / investors to-day are p.r epared to pay a market price for shares which represents a return of 11/10 per cent, less than m November of 1927. • ■;,-;:■- /

Aye'rage'retur'n to in- -./ ' ■ .yestbr on the market' , , No. of price of investment. Class concerns 1927 1928

The: banks include three Australian concerns and one New. Zealand, whilst the insurances iire all local as are the gas companies.'.' '.'■'•-. Of the shiuiMiier, four 1 are Australian and four English, but the three ooul ventures confine the activities to. New Zealand as do the six woollen concerns. ■■- , ' , : It will be noted that there' are six groups of investments m the above table and. that-, for' 1927 the investors' return for £100 invested m each class amounted to £38 18s. 4d. Dividing this by. six gives us , i£6 9s. Bd., which was the investors' average return from these giltedged securities for 1927.. : Nowin 1928 the same investment of £100 In each of these classes of securities produced a total of only £35 7s. 2d; and proceeding as before it is f ouhd that £ 5 17s. 10d. represented the avei'age return on the market price for 1928.'-'. ■•-'•: ' ■■: ;■;.. ■:■<-,,. - '■■■,■■■ /.'-.-■ ■■' ■ The table discloses some curious and Interesting material upon, which- to base remarks. / ■ -■'. ;.' :.// . '. ■'■;'■;,::': ■;,.' "■ '.'•■ For instance, the hijg;hest returns m the series have ariaen ; from the cpal

Share Comparisons

has, of course, to be added secret reserves of which there must be a considerable, amount m the firm's properties accounts. From this it can be gathered that these' preference shares have a wonderful margin of safety and are m addition returning a handsome percentage to their lucky owners. The value of surplus assets behind the ordinary " shares is not nearly so high,, the figure being only 16/3 on every 10/- share against a market price of £1. The .market price is, of course, held up by the value of the annual return. Here is another interesting calculation which shows that on the basia of the published earnings the company's rate of net earning on the shareholders' total funds, i.e., capital plus all reserves and surpluses is for 1928 only £7.9 per cent. "In 1925 this was £10.6 per. cent, and m 1926 it fell to £9.8 per cent; -. Discussing the baiance-sneet foi* year ended August 20, 1928, it has to be pointed out that the comparisons have been worked out against the 1926 figures to accentuate the Changes which have taken place fluring the longer period than if the comparison ■ ■ ■ ■ ; had been taken with the' 1927 figures. ■!..■■-'■ . - The paid-up capital is gradually m

creasing owing - to the fact that there are 19,733 ordinary shares, not f'uliy paid up. During the past two years £ 513 of this money came m, bringing the total paid-up capital up to £428,549. ; In addition to this capital there is employed m the business no less than £110,920 of undivided profits arid re-j serves which together register an increase of nearly £25,000 m two years whi6h must' be adcouhtied good. ' Creditors and bank overdraft stand respectively at £101,819 and £13,096. and have increased by £21,476. ; • Of the assets, land, buildings . and lblant now stand at £323,267, showing 4n increase of £84,141. „ Bi'M debts at £79,071 show a decline of £2341. ■■.-■•, Stodts have declined by £29,836, and now stand at £200,934, Investments show an increase Of £51^0 and total £74,727., A lfu'go proportion of this will no doubt -be required to complete payments on the Wellington premises. ' Cash has done a real "landslide, 1 * the decrease being no : than £11,559, ail of which has gone into; "bricks arid mortar"- or to be up-to-date, "steel and concrete.". Taking a comprehensive >yiew of thitj concern the balance-sheet shows' it to be in' an eminently sound position anil that very fair profits are being earned—although :only two-thirds of the earnings are going put m dividends.

£ .p.c. S, p.c. Banks ... 5 5 18 4 16 5 Insurance 4 4 6 3 4 1 p Gas ..... 9 7 0 11 6 19 6 Shipping 8 5. 15 3 516 A " Coal ..... 3 7. 15 2 7 11 10 Woollens. 6 819 .1 6 2 1 i ' £38 18 4 35 7 2

THE DRAPERY AND GENERAL IMPORTING CO., LTD. Condensed Comparative Balance-Sheet, August 20, 1928. LIABILITIES. ASSETS. Capital paid up ..... 428,549 *513 Land, buildings and Reserved . ....... 65,063 *19,995 plant 323,267. *84,141 Profit and loss ...... 71,209 *4072 Book debts ...... 79,071 t2341 : — . Bills, receivable ..... 1246 *'481 Shareholders 1 funds 564,821 •24,580. Stocks .;;... 200,934 t29,836 Creditors .......: 101,819 *8380 " Investments ..:. 74,727 *5170 Bank .....'.'....'..... 13,096 *13,096 Cash' .... ........ 491 fH.559 679,736 »4G,056 , £679,736*46,056