FOREST STATICS BALANCE SHEET PROFITS 



129. Earning Power of Capital Invested in Forest Produc- 

 tion. In no form of business does the per cent earned by the 

 total amount of capital invested equal the per cent earned by 

 the proprietor's investment unless he furnishes the entire capi- 

 tal without borrowing (32). 



In business receiving annual income, the capital needed to 

 carry the current expenses is usually borrowed, and therefore 

 does not share in the profits but receives p per cent only. 



These arguments are used as a justification for separating the 

 capital invested in a forest crop into two portions, one of which 

 shall be computed at p per cent, and not share in the profits, 

 while the remainder is the basis upon which the rate of income 

 is computed. By thus reducing the amount of profit-sharing 

 capital, the rate of profit is increased or reduced on this capital 

 as the earnings exceed or fall below p per cent on the total in- 

 vestment. 



For instance, it may be arbitrarily assumed that the owner 

 acquires the land, but borrows the funds needed for all expenses 

 of crop production (Group A, 104), as silvicultural expenses, 

 and maintenance or annual charges. It has been shown that 

 such a transaction would seldom occur. But if it does, these 

 expenses must first be returned from income, with compound 

 interest at p per cent. The remaining sum is net income 

 earned by the owner's capital, S c . 



Net earnings = Y + S v - 1C (i.o#) + E (i.op n - i)f 

 = Y + S v + E - (C + E) i.op n . 



The substitution of S c or of S s for S v will adjust this formula 

 to any desired condition (122, 123 and 125). 



