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This paper presents the results of an attempt to estimate the rate of return on capital by regression analysis of financial data. A model relating current profits to current and lagged inflows of long-term capital is considered and fitted to a set of data from the British Mechanical Engineering Industry. Both time-series and cross-section data are used. Acquisitions of long-term capital are measured by summing depreciation provisions, retained earnings and receipts from issues of ordinary shares and instruments of long-term debt. [ABSTRACT FROM AUTHOR]

Focuses on the move of the author to compute and analyze rate of return. Claim of the author on the lack of attention given to the rate of return; Role of rate of return as basis of determining changed needs of investor and consumer; Use of any rate of return as payment for three services: interest, assumption of risk, and the cost of raising capital; Emphasis of the author of the desirability of a flexible rate of return.

IN The Rate of Interest (1907), Irving Fisher introduced the concept of the rate of return,[2] a concept which has remained a prominent feature of ail but the most abstract expositions of neoclassical capital theory. For more than fifty years its usefulness as a component of a theoretical system was not challenged on logical grounds. However, the demonstration by Dr. Pasinetti a that an entire economy may be capable of reswitching, and the subsequent exploration of the consequences by himself and others,[4] has precipitated a thorough cleansing of capital theory, causing the abandonment of widely-held suppositions, and it is inevitable that the Fisherian approach should be subjected to fresh scrutiny. Recently Dr. Pasinetti himself has re-examined the concept of the rate of return, in the course of commenting on two pieces by Professor Solow which make reference to it.[5] And it might seem that Dr. Pasinetti's conclusions are uncompromisingly adverse to the Fisherian theory of the rate of profit. For he states (on p. 529 of his article) that the rate of return is "devoid of any autonomous theoretical content," unless one chooses to use the words "rate of return" as a synonym for "rate of profit," in which case "one cannot obviously pretend to use the notion of rate of return to explain the rate of profit." But a careful reading of Dr. Pasinetti's article reveals that in fact he is not engaged in attacking the Fisherian theory of the rate of profit at all. Instead, his objective is to demolish any suggestion that a "Fisherian" concept of the rate of return could be used to resurrect John Bates Clarke's parable of the determination of the rate of profit, which he has so recently overturned.[6] However, the development of Dr. Pasinetti's argument is such that it might generate misunderstanding about the nature of his objective. The intention of the present paper is to demonstrate that Dr. Pasinetti's criticisms cannot be construed as criticisms of the Fisheri... [ABSTRACT FROM AUTHOR]

The article focuses on the concept of continuity and the rate of return. An economist describes the rate of return with the rate of profit at a switch point. With the same wage rate, net profit per man is higher, therefore the cost of capital equalizes the rate of profit. A more schematic treatment of continuity would allow to say that yet small, the difference between two adjacent wage-rates, there is always one method that is eligible to both, with the suitable pair of rates of profit and patterns of prices. A variation in wage rate brings a different set of prices into play. The difference between these two concepts arises from the difference in the arguments in which they occur. The one-commodity economy was devised to allow the neo-classical allegory in which the rate of profit equates to the marginal product of capital.

The shift in emphasis from sales volume to profitability as a measure of field sales management marked a real forward step in marketing management. One further step IS necessary. The measure of effectiveness of business management should be return on investment (ROI), and not merely sales volume produced or profits as a percentage of sales. The field sales manager should be evaluated on the return on investment he produces in his segment of the business. The author believes that attention to ROI will not only result in harmonizing the objectives of the field sales organization with the over-all objective of the company, but will also equip field sales management with an effective businessman's tool for decision making. [ABSTRACT FROM AUTHOR]

This article presents a supplement to discussions on the weaknesses of the return on investible funds measure of profitability used in two Arthur D. Little studies on the profitability of the property and liability insurance industry in the United States. In this article, relevant historical data were used in combination with certain hypothetical values in order to portray results under conditions of stable and high underwriting profit. To show that the insurance industry will nearly always have a rate of return on investible funds below that of other industries, the author assumed that the increased profits of the insurance industry came from greater efficiency so that past premium income was not affected and that no greater amount of money was available. Therefore to earn interests, the rate of return on investible funds would have been 7.1 percent over the hypothetical 1955-1965 period. This rate is still below that for every other of the nearly 60 non-insurance industries studied in the Little Reports except two; shipping at 6.2 percent and retail-variety at 6.6 percent. The hypothetical rate of return, however, has not been related to the measure of risk used in the Little Reports. If this is done, the 7.1 percent rate of return, when related to a risk of 3.6 percent produces a relative risk value of 50.6 percent. This relative risk value, derived under conditions of a guaranteed annual underwriting profit, still exceeds the relative risk values of all the other industries to which the Little Report compares insurance, except one; Radio-TV manufacturers had a relative risk ratio of 58 percent. It should also be noted that the assumed five percent underwriting profit would imply an average return to statutory net worth over the entire period of 16 percent for stock companies and 20 percent for mutual funds. This is considerably above the average rate of return on net worth for the companies listed on Standard and Poor's Industrial Tape.

The purpose of this paper has been to present and exemplify a new and alternate method of return assessment. The method does have computational and mathematical advantage. It is also believed to have analytic advantage in that it is less susceptible to manipulation by base selection and more closely associated with performance measures which are relatively well defined. [ABSTRACT FROM AUTHOR]

The article focuses on the aspects of the maximization problem discussed in the article of F. A. Lutz regarding "The Criterion of Maximum Profits in the Theory of Investment." In this article it suggests that the quantity to be maximized depends upon circumstances surrounding an investment opportunity, particularly upon input limitations and the technological possibilities of timing input and output. Two possible alternative maximization criteria to be considered are the maximization of the internal rate of return, and the maximization of the difference between discounted receipts and discounted costs. The maximum internal rate of return will always be equal to the market rate of interest in long run equilibrium under perfect competition.

In summary, this paper has illustrated the application of a potentially useful decision criterion to the selection of a security portfolio where borrowing and lending is permitted, I look forward to further refinements. [ABSTRACT FROM AUTHOR]

A graph similar in concept to the conventional profit-volume graph can be used in capital investment planning and can be especially useful in the analysis of relatively complex investment situations. The net discounted cash flow line for the most profitable investment candidate crosses the expected cost of capital line or zone at the highest point. In a large number of investment situations, this line will also cross the internal rate of return line at the highest discount rate and will be above all other discounted cash flow lines at all points. There are also investment situations in which the discounted cash flow lines for the various alternatives will cross. The line for the most profitable alternative does not necessarily lie to the right of the other lines when it crosses over the internal rate of return line. It will, however, be the highest line when it crosses the expected cost of capital line or zone. The line of limitation can be used to predict the cost within reasonable limits.

This article focuses on the geometric analysis of the Averch-Johnson (AJ) model regarding the regulated firm. The Averch-Johnson paper has mathematically demonstrated a tendency of regulated firms toward all forms of overcapitalization. With regulatory lag taken into account, the profit maximizing firm's best strategy is unclear, but it may be to operate with minimum-cost inputs rather than the overly-capital intensive inputs implied by the AJ effect. Regulation may limit the firm so that it cannot operate at the very top of the profit hill. The firm will try to operate at a point where cost is minimized for the amount of output.

The Payback Period has been dismissed as misleading and worthless by most writers on capital budgeting at the same time that businessmen continue to utilize this concept. This paper seeks to identify the problems which businessmen try to solve by use of the payback period, so that better tools can be provided for solving these, since neither the present value nor the internal rate of return does so. In the course of the analysis the payback concept is considered in its role as a criterion versus a payback constraint, payback and liquidity of capital assets and the liquidity requirements of the firm, payback as a break-even concept, and payback as crude measure of the rate of resolution of uncertainty. While payback is not advocated for capital investment decisions, the reasons for its popularity need to be understood before it is possible to develop superior alternatives. [ABSTRACT FROM AUTHOR]

The article presents information on investment criteria and the cost of capital. According to elementary economic theory, profit is maximized when marginal revenue equals marginal cost. By adapting this doctrine to the capital budgeting situation, we get the theory that a company's investment program should be expanded to the point where the return from the last dollar invested equals the cost of raising that dollar. This suggests that a rational decision to accept or reject a particular investment opportunity can be made consistently. Unless the rate of return exceeds the cost of raising funds in the capital market and offer should be rejected.

Common sense as well as conventional marginal analysis tell us that a firm which is free to maximize profit and constrained only by its technology and the market it faces must experience a decline in profit if the price paid for any input is increased. For the regulated public utility, however, prices of inputs often help to determine how much profit the firm is permitted to earn. Regulation of electric utilities by State or local regulatory commissions usually involves some limitation on the rate of return on value of assets. Details vary widely. Allowable rates of return, however computed, are in excess of the rate of return associated with unregulated maximizing behavior. As for the unregulated monopoly firm, higher prices of inputs must reduce profit. On the other hand, in circumstances where the regulatory climate is less favorable and the restriction on the rate of return does take a bite, the increase in cost associated with the higher capital-goods prices may at least in part be counterbalanced by what amounts to a relaxation of the regulatory commission's restriction on profit, as the value of the capital base rises with capital-goods prices. If, in sharp contrast to token regulation, the utility is forced by the regulatory commission to operate on an inelastic portion of the demand curve for electricity, then the higher prices will surely allow the utility to more than compensate for higher costs by additional revenues, whether the commission's rate of return is based on capital valued at original cost or at replacement cost.

Specialization is the essence of economic life and this is the particular aspect of specialization which authors John C. Gurley and Edward S. Shaw (G-S) have undertaken to analyze. In the absence of distribution effects, the necessary conditions for rendering a monetary system determinate is that there be an exogenous fixing of some nominal quantity and some rate of return. It follows that if we were to extend the argument to an economy with both inside and outside money it would suffice to fix the quantity of outside money and its rate of return. In such an economy the price level would be determinate even if the central bank were to fix nothing, and operate solely in accordance with the principle of profit-maximization subject to the restriction that the quantity of outside money is fixed. It is unfortunate that G-S have so strongly tied their discussion of central bank policy with that of the conditions necessary to achieve a determinate price level. The analysis of central bank policy should concentrate on the behavior such a bank can adopt with reference to such decisions as open-market purchases of bonds in order to bring about desired changes in a determinate price level and in other variables of the economic system.

This study examines empirically the determinants of the rate of return on common stocks for ten cross-sections of 86 common stocks for the years 1958-1967 in a multiple regression analysis. Theoretically, the common stock rate of return under investigation, y, is defined as the ratio of the expected income associated with a particular equity to the market value of that equity. Empirically, this rate is represented by the logarithm of the ratio of a weighted average of past annual share earnings to current market value of the share, r = log y. The empirical rate of return, r, is postulated to be a linear function of two groups of variables: a corrective group and an explanatory one. (1) The corrective variables are employed to attenuate errors involved in the measurement of the empirical representation of expected income in the numerator of the rate of return. (2) The explanatory variables are presumed to represent factors which exert a real influence on the relative desirability of stocks. They are employed to provide an explanation of the rate of return based on preferences and aversions of people in the market to various attributes of common stocks. [ABSTRACT FROM AUTHOR]

This article discusses whether a proposed price increase could be justified as necessary to preserve a reasonable rate of return. The easiest way of going about the job of evaluating a price is to make calculations of an accounting rate of return on assets. An investigatory agency's accountants can usually produce a predicted profit-assets ratio for the current year or forthcoming year. If this seems to the agency to be about right in relation to a respectable or normal profit-assets ratio, the agency can then decide that the prices used in the forecast are such as to provide a reasonable rate of return, and therefore merit its approval. Once a profit-assets ratio has been predicted it has to be compared with the profit-assets ratios of other firms in order to see whether or not its level is acceptable to the agency. Thus the problem arises of choosing these other firms. The judgment that an average profit-assets ratio is right implies a belief that the client is subject to just average risk. Since firms are owned by shareholders it is presumably in terms of their interest that an agency must attempt to see whether prices are such as to make the new investment worth while. The best approach is to use profit-assets ratios to decide whether prices are fair or unfair and d.c.f. rates can be used to examine the resource allocation effects of prices.

In this article authors examines the relationship between industrial concentration and corporate profit. They try to find out whether the critical level of concentration can be defined, and whether increased concentration above the critical level significantly increases profitability. Economic theory provides some guidelines in selecting a measure of profitability but it is unable to indicate, unambiguously, the best definition. Some economists have argued that the rate of return on some measure of invested capital is theoretically the most appropriate measure of allocative efficiency. Authors remark that if advertising is associated with concentration the relationship between the price-cost margin and concentration could be spurious. Another drawback of the price-cost margins is the fact that they are available for only selected years and therefore it is not possible to average these margins over a sufficiently long period of time to test adequately the long-run theoretical relationship.

This article focuses on advertising, profits and corporate tax revisited. In the previous issue of the journal "The Review of Economics and Statistics," L.W. Weiss, an author, estimated the overstatement or understatement of profit and rate of return which result from the corporation income tax rule permitting firms to write off long-lived advertising expenditures in the year in which they are incurred. The purpose of this article is to introduce those improvements and revise the estimates of reported and true profits and rates of return for the U.S. Internal Revenue Service's(IRS) minor industries and 10 large advertisers used in the previous study. T. R. Stauffer, a economist, has developed a very sophisticated analysis of biases in accounting profits. He concluded that the bias introduced by the expensing of advertising depends not only on growth and depreciation rates but on the time profile of cash flow associated with fixed capital outlays and on the ratio of non-depreciable working capital to fixed capital as well.

Evidence of an absence of regulatory concern for profit performances of publicly owned utilities was provided initially by William G. Shepherd. In a sample of publicly-owned electric utilities, there was an indication of significant inter-utility variances in earnings on net utility plant and in numerous cases profit rates very similar to those earned by investor-owned, firms. Marshall R. Colberg found publicly-owned utility profits to be an important source of municipal revenue in Florida cities; in contrast, Jack Hirshleifer, James C. De.Haven, and J. W. Milliman found in many Southern California. cities that water services, by being priced below average supply costs, were subsidized by property taxes. The interpretation of public utility rates of return in the context of allocative and technical efficiency must be conditioned by several considerations. Rate of return calculations will vary with both the rate base and the earnings measurement. Thus one can obtain multiple rates of return from the same set of financial statistics. Judicial arid commission regulation has not generated a definite standard for determining the excessiveness or inadequacy of utility rates of return. For example, relatively low rates of return in some cases may defer the adoption of cost-saving technology while in others they may induce the replacement of obsolescent production and distribution techniques.

In this paper we examine how the rate of return on a bond of specific maturity changes through time and how the rates for bonds of different lengths of maturity appear to be interrelated. The study is mainly descriptive and does not attempt to construct a complete model of the system. It is hoped that by isolating certain characteristics of the bond market, comments can be made concerning the adequacy of current theories of the term structure and relationships will be found that future theories will need to explain. [ABSTRACT FROM AUTHOR]

The purpose of this article is to prove that an increase in the price of a factor of production may increase short-run profits in a competitive industry. A rise in factor prices lowers equilibrium output but increases profits per unit. The net effect on total profits is likely to be positive sufficiently often so as not to reduce the paradox to a mere curiosum. A corollary of the paradox is that profits no longer are a good signalling device. Assume that an industry is initially in long-run equilibrium. Since the analysis of higher factor prices was a short-run analysis, the number of firms and quantity of capital in an industry were assumed constant. Larger absolute profits, therefore, mean a higher rate of return, which would induce entrants. However, assuming the relative increase in factor prices is permanent, the long-run supply curve shifts upward, and equilibrium output of the industry falls. If firms' isoquants are homothetic with respect to their origins, a higher price for a factor does not change the optimum firm size.

The pioneering study 'Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936-40,' by professor J.S. Bain has found a dichotomous relationship between accounting rates of return and concentration. The average rate of return in the unconcentrated industries used in the study sample moved up from 2.1 percentage points below the 1936-1940 average for the total sample to only 0.5 percentage points below the 1953-1957 average for the total sample. The difference in findings for relative returns in concentrated and unconcentrated industries appears to be almost entirely a consequence of the enlarged coverage in the U.S Federal Trade Commission sample. The sample of industries chosen by the author biased his data and the sample of firms used to represent each industry introduced additional bias.

The airframe industry in the U.S. constitutes a large and important segment of the economy. Two distinct markets provide the bulk of demand for the industry's product. The government sector is essentially a bilateral monopoly, while the commercial airliner area is a tight bilateral oligopoly. To gain insight into the source of profits for the industry, these two markets must be considered separately. There are some basic differences between the commercial and government sectors of the industry, particularly with regard to conduct. This heterogeneity has introduced significant divergences between the performances of commercial and noncommercial firms. An analysis of return on invested capital, which is taken as the profits measure, is presented with special attention given to intra and interindustry comparisons and to the effect of risk on the necessary rate of return. The article concludes that commercial performance had two important and contrasting effects on the structure in the industry. The relatively larger airliner producers devoted energies to commercial operations, government-oriented firms made greater gains in the more rapidly growing government area.

Comments on an article concerning the nature of profits in the property and liability insurance industry. Information on the capital-asset-pricing-model (CAPM); Assumptions on the general equilibrium model; Bias in definitions of the rate of return.

This article presents information on financial accounting. The net realizable value of an asset is defined as the maximum net amount, which can be realized from the disposal of that asset within a short period of time. Net amount is defined as the selling price less disposition costs including tax effects discounted to the point of measurement. Basically, the issue is whether or not society is better served by the valuation of assets for public reporting at the cash they command upon sale or at the cash required to have them available for use by the firm. It might appear that under pure and perfect competition, with equally well-informed actors, the gap between the net realizable value and the replacement cost would be minimal and could be ignored. This is not the case due to the existence of frictions in the market place, such as commissions, transportation costs and the like. A stronger argument favoring net realizable value is based upon the frequent reference by statement users to a rate of return computation. The measurement of assets influences both elements of this computation since this measurement affects the denominator directly and the numerator through the depreciation charge.

The article compares the various effects of the two methods of inventory valuation, namely, last in, first out (LIFO) and first in, first out (FIFO), with those produced by a model of complete certainty. This model equates profits with the internal rate of return needed to reduce all the cash flows to the present value of the investment in the enterprise. The model of complete certainty does not value the individual assets but rather it puts a value on the whole enterprise, including its positive or negative goodwill. The considerable argument which occurred over LIFO vs. FIFO some years ago was almost entirely literary in content, and if the results of using both methods can be compared with the true result, it may be that some conclusions can be drawn as to which method of approximation may be most suited to a particular circumstance. It is true to say that the profits shown under FIFO and the correct profits are both partially unavailable for distribution. LIFO overcomes this to the extent it is able to ignore the initial purchase of goods, which is carried forward as inventory, while otherwise recognizing profits on a cash basis only.

The article discusses a theory of profit and interest. A discussion on the laws of optimum size and of the increasing and decreasing returns is presented. The laws stipulates that: the optimum size, that is a certain capital, yields a maximum rate of profit; the rate of profit on other capitals yields an increasing return below the optimum size; and the rate of profit also yields a decreasing return beyond the optimum size. The laws are applied to several industries such as agriculture and meat packing industry among others. The factors that contribute to the emergence of profit and interest are tackled. A new formulation of the laws of return is presented.

Comments on the formulation of actual growth rate concept. Influence of rate of capital profit on saving ratio and capital-output ratio; Correlation between growth rate and profit rate; Posibility on equilibrium profit share and profit rate multiplicity.

The article discusses the relationship between entry barriers and profitability. This hypothesis is examined by reference to the relationship between entry conditions and the stability of the market structures. Firms in the high barrier group adopt a price policy designed to deter new firm entry. Firms in the low barrier group assess barriers as low enough to cause them to strive for relatively high, entry attracting prices rather than to set prices sufficiently low to deter entry. Very high barrier group display stable market structure and low barrier group display unstable market structure. Structural stability is measured in terms of actual entry. The article points out that there is a tendency towards higher concentration in the high barrier group during and declining concentration in the case of the substantial and low groups. The similarity in concentration movements in the substantial and low barrier classes suggests that these groups represent single barrier category. In terms of profitability, high barrier industries differ from all others but that no difference exists between substantial and low barrier industries.

The problem of selecting a portfolio from a set of independent risky business ventures is formulated in terms of maximization of the risk-adjusted (certainty-equivalent) profit of the portfolio, based upon the exponential utility function. Objects of investment include fractional participation (risk sharing) in projects with other firms, where costs and returns are shared in the same proportion. The method assumes that project costs are certain. Project revenues are uncertain, and any probability function for revenue can be used. [ABSTRACT FROM AUTHOR]

This article points out the need for an empirical study of the relationship of long-run expected rates of return to risk despite the existence of numerous studies of short-term expected rates. Under certain conditions, the empirical findings about the short run can be generalized to the long run. Under the assumptions of independence and no transaction costs, it would be possible to infer the relationship between expected long-run returns and risk from the short-run relationship with the same probability that the short-run relationship is held. Yet these assumptions do not describe the market place exactly, so that there is no guarantee that any inference about long-run relationships from short-run empirical results would be valid. The independence assumption, while theoretically appealing, appears valid only as an approximation. A number of earlier studies have found some dependence among successive rates of return, although generally not of sufficient size to use for profit after taking account of transaction costs.

This article focuses on the taxation of commodity producers. A document by P.S. Dasgupta and J. Stiglitz that appeared in the January 1972 issue of "Review of Economic Studies" entitled "On Optimal Taxation and Public Production" discussed the optimum taxation of profits accruing to firms under diminishing returns of scale, and the implications for optimum commodity taxation and public production. The main theorem asserts that, when the rents of different producers can be taxed at different rates, production efficiency is desirable. This article's author, together with another econometrist, P.A. Diamond, analyzed the relationship between commodity taxation and public production. In the study, it was assumed the constant returns flowed in the private sector, and it was supposed that productive efficiency would not usually be desirable when this assumption was violated. Therefore, it is the main objective of this communication is to see how the results can be obtained using proposed methodologies.

In this paper, I propose a resource allocation (planning) process designed for an economy where increasing returns to scale prevail. The main feature of the process is to supplement the market mechanism by the central allocation of investment funds. It is well known that the unmodified market mechanism fails to solve optimal allocation problems, if non-decreasing returns to scale play a very important role in the economy. In order to meet the difficulty, Arrow and Hurwicz [1] introduced price speculation into a tatonnement process. Although locally convergent and informationally most efficient, their process is not entirely satisfactory especially from the motivational point of view. [ABSTRACT FROM AUTHOR]

This paper presents a decentralized planning routine—i.e. an iterative procedure for solving the problem of finding an optimal short-run plan for a centrally-planned economy. Earlier publications in this area group neatly into two distinct categories: those where the centre quotes prices for goods and services, and those where it proposes quantitative allocations. The routine to be outlined below falls into neither of these categories. It can be given different institutional interpretations, one involving a mixture of price and command planning and bearing an appealing resemblance to the mixture of materials balances and markets actually used in certain planned economies, and the other partially resembling the market socialism of Lange, Arrow and Hurwicz. [ABSTRACT FROM AUTHOR]

This article focuses on the portfolio balance theory of the expected rate of change of price. The main purpose of this paper is to test empirically the portfolio balance theory of the expected rate of change of prices, E. The paper is divided into two parts: Part one contains a statement of the theory and the test that will be conducted; Part two presents the empirical findings. The sources of the data are given in the Appendix. Before proceeding with the empirical examination of the theory, it would be useful to note the following main assumptions underlying the theory of E as given by: That for analysing the impact of expected inflation or deflation what matters is the portfolio choice between monetary assets as a group on the one hand and real assets as a group on the other hand, and not choice among assets within each group. In other words, the assumption is that the ratios of rates of return on monetary assets and similarly the ratios of rates of return on real assets are not affected by E; That expected capital gains or losses on monetary and real assets are equal and so are the risk premia attached to them.

The factor-price frontier (FPF), which gives the relationship between the real-wage rate and the profit level or rate of interest in alternative steady states, has received the attention of several economists. Recently this idea has been generalized to include non-steady states for a Leontief model with a spectrum of alternative production techniques by some economists and by other for a multi-sector neoclassical model. In these cases the equilibrium real-wage rate is determined as a function of the various gross own-rates of return for the many heterogeneous capital goods. However, it has never been shown that this generalized FPF is the solution to a compact linear programming problem. The result is easily obtained in a simple Leontief model with only one production technique, but the introduction of a spectrum of techniques or of joint production makes the formulation of the problem more difficult. In this article, a model with joint production of the von Neumann type is considered and obtains, as the solution to a linear programming problem, the minimum real-wage frontier.

The article presents views of the author on the subject of importance of rate of interest in business. It is a counter argument to points raised by another author in one of the previous issues. Interest rates exert a decisive force on trade during the rise. Rising interest rates are affected by a rising price level and depletion of bank reserves, But, quoting from the statement of the case the author made in June 1926, "The fact that interest rates continue high or even rise farther after the pace of business is retarded is not proof that the earlier rise of interest was not a significant factor in the business cycle." Interest and trade, as well as other factors, are mutually interactive, causative and consequential. Interest, through cost and profit, helps in the control of trade and trade in turn, through prices and bank reserves, helps in the control of interest. Profit and anticipation of profit are the motive forces in business and direct activity, speeding it up or slowing it down as well. Interest rates enter directly into profit in a significant manner, and thus affect business conditions and business policies. Changes in the rate of interest thus help in bringing on other stages of the business cycle.

The article discusses the relationship between the size of a firm and its profitability. The primary goal of this paper is to test researcher W.J. Baumol's hypothesis. It is divided into three parts. In section one, the focus is on data and model, section two presents analysis of results and in section three it draw a few tentative conclusions. The logic of Baumol's proposition is that large firms have all of the options of small firms and in addition they can invest in lines requiring such scale that small firms are excluded. It follows that "... so long as any industries are peculiarly well suited to large investments and so yield disproportionate returns to sizeable funds, then, provided capital is prepared to move in response to profit differences, this will tend to be true of all other industries in which large firms operate." If this hypothesis is correct, one should find higher rates of return in large enterprises even in the long run and even in the absence of barriers to entry other than those directly associated with availability of capital. An empirical test of this proposition should give a basis for judging the "height" of the "capital requirements" barrier, a potentially important element in the explanation of industry performance.

The article focuses on the concept of risk to property-liability insurance ratemaking. Professor Jeffrey T. Lange's paper has highlighted an apparent deficiency in property-liability ratemaking. It also opens a bit further as far as large segments of the industry are concerned because properly incorporating risk into the ratemaking process requires reconsideration of the "profit formula." The determination of appropriate profit provisions is a matter that large segments of the insurance industry have avoided successfully for many years. Such a determination in a price regulated industry, according to economic theory, should be based upon total return on investment and not a percentage of sales. Lange suggests that underwriters have undoubtedly recognized risk in their rates in an informal way for many years. However, the meanings that underwriters give to "high risk" often may differ from those suggested by Lange, i.e. while Lange's meanings emphasize variability, the underwriter's meanings are more apt to emphasize greater than average loss frequency and/or severity.

Accountant and economist are a sensible combination on matters of income determination, as Professors Robert L. Dickens and John O. Blackburn demonstrated, that their several-pronged analysis demolishes the case for replacement cost as an ingredient in accounting net income is, however, deserving of a demurrer. This present article is a criticism of their criticism, the purpose being to return the argument to what the economists regard as its proper grounds. The criticisms embrace three areas, methodology, economic theory, and accounting theory. The methodological criticisms are, of course, general and independent of the subject matter treated. The criticisms on economic theory refer primarily to economic concepts which underlie many of the questions discussed by Dickens and Blackburn and are, of course, specific to economic theory and its applications. The criticisms on accounting theory are principally concerned with the charges, both express and implied, by Dickens and Blackburn that the use of replacement cost is incompatible with the informational needs of stockholders, and significantly less conventional than the use of conventional accounting, thus being an invitation to easy manipulation of accounting data by managers.

In a dynamic setting, portfolio management is a portfolio revision process through which an investor revises his portfolio periodically to adapt to changing conditions, either endogenous or exogenous to the portfolio. For example, an investor accepting an intrinsic-value hypothesis may find it profitable to revise his portfolio when his expectations in returns and the riskiness of some earning assets deviate significantly from those of the market. Likewise, an investor accepting the random-walk hypothesis may find it profitable to revise his portfolio because of an exogenously determined cash demand (either inflow or outflow) or changes in portfolio value and proportions due to change in prices of earning assets and cash earnings received. The problem is of considerable importance because investment decisions are usually made starting with a portfolio rather than cash, and consequently some assets must be liquidated to permit investment in others. Despite its importance, the problem has received only limited attention in the literature.

Examines the factors influencing growth rate. Influence of rate of profit on capital net income and value of capital on growth rate; Analysis on probability of a uniform growth rate in a growing economy; Determination of relative prices on steady growth rate economy.

The article provides various clarifications on the previous study about investment criteria and capital intensity. The author intended to clarify the issues on the right method of allocating investment which is to choose the investment pattern that would be selected by the market mechanism, the model presented in the previous study that divided wage and profits, establishing reinvestment as an independent criterion wherein assumption that all profits are reinvested must be discarded, the reliability of the reinvestment criterion, the emphasis on reinvestment which yielded an argument for investment in more capital-intensive industries than would be indicated by a pure market calculation, the implications of the thesis for another investment criterion and social marginal productivity.

This article presents the author's reply to a critique of his study on the relationship between the rate of return to stockholders and the returns earned from equity capital. The author stated that Robert Stonebraker argues that a model of the regulated firm should have management trying to maximize stockholders' total return. According to the author if one accepts Stonebraker's model it is clearly untenable to make assumption that the firm is guaranteed with earnings at an allowed rate. The author implies that without empirical studies, a profit maximand, an E/S maximand and rate of return maximand does not accurately describe the regulated firm.

Features comments of the author to an article on Irving Fisher's analysis of rate of return. Claim of the author of the lack of value of the article; Focus of the criticism of the author is on the application of the Fisherian analysis to determine the rate of profit; Efforts of the author to show that results obtained from a one-commodity model cannot be extended to the general case.

The article discusses a study on the relation of a firm's performance to the sophistication of capital investment procedures and standards. The findings of the study did not indicate a consistent association between performance and capital budgeting techniques despite an increasing adoption of sophisticated capital budgeting methods. This states that the mere adoption of different analytical tools is not enough to being about superior performance. Moreover, factors such as marketing, product development, executive recruitment and training, and labor relations may have a greater impact on profitability.

Presents the author's comments on Professor Charles K. Rowley's reply to his criticisms and the pragmatic treatment of the Monopolies Commission in Great Britain. Impact of profit level acceptability on the decisions of Monopolies Commission; Allegations made by Rowley; Criterion for measuring rates of return.

The article focuses on problems associated with capital budgeting. The author states that the problem of capital budgeting is to decide which of the available investment opportunities a corporation should accept and which it should deny. Four earnings streams are examined. These earnings streams are: net cash flow, net income, net operating income, and dividends. Each of these earnings streams has a companion discount rate, but there are no terms to identify these rates. The article seeks to determine which of these streams, with their discount rates, are appropriate to the capital-budgeting issue.