Book review, Inventory valuation

John H. Wicks, Affluence and High Household Liquidity: Problems and Opportunities: Discussion, The Journal of Financial and Quantitative Analysis, Vol. 1, No. 1, Proceedings of the First Annual Meeting of the Western Finance Association (Mar., 1966), pp. 53-55

Investment analysis, both for purposes of capital expenditures and for financial investments, is based on an evaluation of cash flows. This evaluation involves the application of interest rates in order to determine whether a given option–a series of cash flows–is profitable or not. For numerous reasons, primarily that of simplicity, it has been traditional to assume that the rates of interest used to measure the worth of an investment are constant. With this assumption it is possible to equate the two familiar investment criteria when investments are independent and outlays are not subject to expenditure constraints, i.e., when capital markets are taken to be perfect in the usual sense. An investment is profitable if its net present value is positive when discounting of cash flows uses the (assumed constant) cost of capital, or if its (assumed unique) internal rate of return is greater than the cost of capital. Equivalence of these two criteria is historically most frequently identified with Irving Fisher [3, 4], and his two-period analysis, portrayed graphically, is generally utilized to establish the correctness of the equivalence of the criteria.

This paper is an attempt to improve on the ability of financial management to arrive at a desirable or close to “optimal” cash balance for a firm at a point in time. There have been several comments on this subject in literature over the years including the contributions of Keynes, Hicks and Samuelson. In recent years Baumol and Beranek have presented us with more specific models. This paper tends to be more operational than the Baumol or Beranek presentations and hence tends perhaps to lose some of the sophistication of the more theoretical models; it attempts to present a reasonably operational method for providing for cash balances for transactions and precautionary purposes. But let us first examine these two models briefly.

Journal Article The Optimality of Pure Competition in the Capacity Problem Get access Lawrence H. Officer Lawrence H. Officer Harvard University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 80, Issue 4, November 1966, Pages 647–651, https://doi.org/10.2307/1882920 Published: 01 November 1966

Introduction, 325.— Demand for foreign exchange, 326. — Supply of foreign exchange 327.— Signs of elasticities, 329. — Graphical presentation, 330.

Financial ratios, Solvability, Predictability

T HIS paper represents recent estimates of the rate of growth of output and labor productivity in wholesaling and retailing foods of farm origin destined for United States civilian consumption.' Technically, primary interest in the paper is in the results of using different measures of output for a trade group. These measures include an index of gross output and two indexes of net output, a double-deflated value added series and a margin-weighted series. The double-deflated value added series is nearest to an ideal measure of unduplicated output, whereas the margin-weighted index is a compromise usually dictated by available data.2 Margin-weighted net output indexes were used by Barger [2], Kendrick [5], and Alterman and Jacobs [1] in order to measure net output in total trade. As far as I know, there have been no previous attempts to estimate double-deflated value added net output for trade. I know of no previous studies of labor productivity in food trade. The major findings presented in this paper are: (a) net output per man-hour in wholesaling and retailing farm-originated foods grew at an average yearly rate of 2.8 per cent from 1929 to 1958, substantially faster than in the private nonfarm sector but less than in agriculture; (b) the double-deflated value added measure of net output rose significantly more than the margin-weighted measure during the period; and (c) gross output grew at about the same average yearly rate for the three decades as a whole as net output measured by doubledeflated value added.

CONVENTIONAL price theory predicts that industries in which output is produced by a few dominant firms may, in the long run, earn higher rates of return on the owners' investment than the opportunity cost of the equity capital, commonly called the normal or competitive rate of return. The emphasis on the long run recognizes that actual profit rates differ from normal in the short run for reasons independent of the number of sellers, e.g., changes in demand or cost which raise or lower profits until the reallocation of resources pushes the industry toward long-run equilibrium. The word may indicates that seller concentration is a necessary, but not sufficient, condition. For instance, if the few sellers fail to cooperate with regard to price and output, profits well turn out to be normal. Or, if entry is relatively easy, the oligopolists set a price close to the competitive level in order to discourage potential entrants. A price policy so designed is called pricing, the limit being that price above which entry would be attracted.' Joe Bain has examined the latter possibility by measuring the influence of barriers to entry, classified as very high, substantial, and moderateto-low, on the profit rates of the leading firms in a sample of oligopolistic industries for the periods 1936-1940 and 1947-1951.2 He expected that the price and the monopoly price would probably coincide in the very high barrier class while oligopolists in markets with substantial or moderate barriers might find it profitable to set an entry-forestalling price below the monopoly level, a price which approaches the competitive price as entry barriers decrease. Therefore, profit rates should decline as barriers to entry decrease. Bain found a distinct difference between the average profit rates of those industries in the very high barrier category and those in the other classes. No such clear difference appeared between the substantial and the moderate-to-low barrier classes. He further found . . that seller concentration alone is not an adequate indicator of the probable incidence of extremes of excess profits and monopolistic output restriction. The concurrent influence of the condition of entry should clearly be taken into account.' The purpose of this paper is to present the results of research into the relationship between seller concentration, barriers to entry, and profit rates for 1950 to 1960 to determine whether the pattern Bain found holds for a period of time that was not part of the Great Depression or of rapid postwar inflation. The findings support Bain's results, suggesting that a beginning has been made toward the accumulation of some evidence regarding the influence of two major aspects of market structure on rates of return.