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Abstract
The changing structure of the food marketing system
focuses attention on competitive relationships
existing in food industries. Conventional measures
of profits, such as profit rates on stockholders' equity
and on total assets, often are used to appraise the
performance of these industries. This article points
out some of the shortcomings of these profit ratios,
giving special emphasis to the impact of leasefinancing.
Many retail chains use leases to finance
their long-term capital needs, but few food processors
do. When a firm finances its capital by leasing
rather than by ownership or mortgage, the firm's
net profit and its stockholders' equity each represent
a larger percentage of total assets. As leased assets
do not appear on the balance sheet, they represent
implicit leverage. The following estimates present
value of leased assets for a group of large food processing
and retailing firms by capitalizing rental
obligations. Total assets plus leased assets give total
capital supplied by owners, creditors, and lessors.
Gross returns to this capital are nearly equivalent
for processors and retailers in spite of inequalities
in conventional profit ratios. Some implications
of this finding are considered.