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.


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