CHAPTER VIII 

 FOREST STATICS THE BALANCE SHEET PROFITS 



120. Determining the Profits of a Forest Investment. Forest 

 statics is defined by Schlich* as "the science which weighs and 

 considers the comparative merits of the different methods of 

 treatment to which forests may be subjected. The financial re- 

 sults, or income-yielding power of an undertaking, are expressed 

 by the proportion existing between the yield and the capital 

 which produces it." 



Two distinct methods are possible in preparing a financial 

 statement in forestry (73). The first may be termed the spe- 

 cific balance sheet and conforms to the principles of accounting, 

 by recording only the actual cash investments as credits, and 

 valuing the assets preferably at actual cost. By means of the 

 supplementary profit and loss account, the net income, or loss, 

 is annually transferred to the balance sheet. 



This specific balance sheet does not reveal profits until they 

 are actually realized. It is therefore extremely conservative. 

 For a business based on deferred income as in forest production, 

 the annual net deficit of expenses over income may continue for 

 many years, requiring continuous increase in invested capital, 

 which would be further increased by borrowing, and adding to 

 expense the actual cost of interest on these borrowed funds. 

 The balance sheet indicates an increasing deficit, up to the time 

 the timber is cut. 



With the receipt of this income, the total assets are suddenly 

 increased to several times the total investment, showing an ap- 

 parent profit of hundreds of per cent in case of even-aged stands 

 harvested after from 40 to 60 years. 



" Manual of Forestry," Volume III, Forest Management, by Sir William 

 Schlich, 4th Ed., Chapter VI, p. 149. Bradbury, Agnew Co., Ltd., 10 Bouverie 

 St., London. 1911. 



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