184 FOREST VALUATION 



Method C is to share the profit or margin between the owner 

 of stumpage and the operator. Such a plan requires complete 

 confidence in the integrity of the operator or a right to inspect 

 his books, and is not generally practiced, though one of the most 

 equitable of methods. 



It is the only one of the three methods proposed above, 

 which can be based on the actual costs of a given operation, 

 with safety to both parties. Letting q per cent equal the per 

 cent of net income taken for stumpage value, the formula is 



Y m = q%\S - (Lc + Mc + D}\. (Rs) 



In the following diagram the basis and results of these three 

 methods is shown, and the effect of an increase of operating 

 costs upon profits and stumpage values. 



DIAGRAM III 



COMPARISON OF COSTS, PROFITS AND STUMPAGE VALUE BY OVERTURN METHODS 



Sale Value 17.00 



Method A 



Profit 20 H of Costs 



Costs 11.00 | Stumpage 3.45 I Profit 2.55 I 



Costs 13.00 | S i"4'" Se | Profit 2.5S~| 



Profit 15 % of Sale Value 



Costs 11.00 1 Profit 3.00 I Stumpage SjHO I 



Method C 1 1 1 1 s.: miaM 



I Costs 13.00 I Profit 2.00 1 "jy | 



Profit 50 * of Net Income 



Operating costs, profits and stumpage value based on i M board feet of lumber, 

 scaled in the log. 



178. The Investment Basis for Profits. Although profit 

 may be expressed in' terms of per cent of cost, or of sale value 

 for a unit of product, it can be correctly gauged only as a return 

 on invested capital in which is included the enterpriser's gain 

 (32, 33). The knowledge that a profit of $i per thousand feet 

 has been earned does not suffice as a basis for dividends. The 

 reward for personal services, which is so large an element in small 

 undertakings, disappears with large enterprises, and net income 



