FOREST STATICS BALANCE SHEET PROFITS 103 



good stumpage. Should the sale be consummated these ap- 

 praised values are realized, and the profit shown in this tenta- 

 tive or economic statement becomes an actual profit, entered 

 specifically on the books. 



To what extent the value of assets in a specific balance sheet 

 should be increased above cost of purchase, is a question to be 

 determined by the character of the business. Unless these 

 increased values are eventually realized, the profit shown by 

 reason of such increase exists merely in anticipation, and until 

 it is secured, this profit cannot be distributed as dividends. 



There is considerable difference between the financial status 

 of a lumber company conducting an extensive operation with 

 stumpage held merely as a timber mine to furnish wood until 

 exhausted, and that of a forest owner engaged in growing timber 

 as a business. The former concern is obliged to adhere rigidly 

 to the accounting principles commonly accepted in business 

 circles. Its timber will be entered at cost, unless a bond issue 

 is floated, when it is customary to appraise the timber at its 

 present stumpage value and to make a far more complete esti- 

 mate of its amount. Bonds are secured by value, not by cost 

 of property bonded. The interest on these bonds must be met 

 annually or foreclosure follows. Taxes, protection and interest 

 are, therefore, formidable items of expense and timber must be 

 cut each year to produce sufficient income to cancel these costs 

 for the entire remaining body of stumpage. 



But because of these conditions, the actual status of the 

 lumberman's investment tends to follow a similar course to 

 that of an investment in growing timber. The first years will 

 tax all the resources of the owners to keep ahead of their obli- 

 gations. Need for income is urgent. The tendency is to 

 greatly increase the size and capacity of mills and operations. 

 This universal tendency causes overproduction of lumber and 

 defeats its own ends by lowering prices. 



But once a concern has weathered this initial period, and 

 reduced its indebtedness and carrying charges, the final years 

 of the operation become more and more profitable. It follows 

 that those operators who have the greatest amount of capital 



