Page:Hints About Investments (1926).pdf/138

 as to what this "something considerable" should be, is a matter in which opinions will differ enormously. And the question is all the more complicated because it will clearly depend on the rate of profit being earned, and the rate of profit depends on the view that is taken concerning the value to be placed on the assets.

For if the figures of the assets, or the items on the creditor side, need to be reduced or raised in order to be a "correct statement," the difference between the assets and the liabilities will be altered, and this difference is what makes profit.

Let us see by means of a very much simplified example, how the process works of arriving at profit. Let us suppose a little company starting with a balance-sheet like this:

At the end of its first year it has worked up its stock and sold it for £100,000, paid £20,000 in wages, taxes and all other expenses and replaced its material at a cost of £50,000. It has (in order to simplify) worked entirely on a cash basis and so has received £100,000