Financial analysis of the paper industry

75 Pages·03.676 MB·English

by  Hill, Moffat Robertson

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FINANCIAL ANALYSIS
of
THE PAPER INDUSTRY
MOPEAT ROBERTSON HILL
Submitted in partial fulfillm ent
of the requirements for the degree of
MASTER 01 BUSINESS ALMINISTRATION
Faculty of Graduate Studies
THE UNIVERSITY OF WESTERN ONTARIO
1950
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UMI Number: EC54031
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TABLE OF CONTENTS
FOREWORD ...................................................................................................................................... 1
ABSTRACT ...................................................................................................................................... 2
CHAPTER
I Method of procedure and source of data....................................................4
II Definition of terms used.....................................................................................6
III Definition of ratios used............................................ . 8
I? Mechanical procedure............................................................................................11
V Analysis of r a ti o s ............................................................................................16
Chart #1. Ratios, for each year and their average, as computed
from composite annual balance sheets.
Chart #2. Ratios, for each year and their average, as computed
from each company's annual balance sheets.
Chart #3. Ratios, for each company and their average, as
computed from each company's composite 11 year
balance sheets.
Chart #4. Summary of the three industry average ratios, and
overall industry average.
Chart #5. High - Low chart of 1948 and of 1938
VI C onclusion........................................................................ 31
APPENDIX
A Charts #6 - 16
Balance Sheet Data for each company and composite annual
Balance Sheet for Industry, by years 1948 - 1938.
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m
B Chart #17 - 1 - 3 - 3
Detail of Industry Ratio computations, as calculated from
composite annual Balance Sheets
C Charts #18 - 28
Ratios for each Company and the averages, by years 1948 - 1938.
D Charts #29 - 33
Ratios for all the years and the averages, by Companies.
1 Charts #34 - 38
Balance Sheet data for each year and composite 11 year Balance
Sheet, by Companies.
F Chart #39
Detail of Company Ratio Computations, as calculated from
Composite 11 year Balance Sheets.
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1
FOREWORD
In 1948, a study was commenced at the University of Western Ontario
for the purpose of assisting the businessman in analyzing the changes
which have been taking place in various Canadian Industries since 1938.
This paper is an analysis of the Canadian Paper Industry.
In this paper, we have used thirteen financial ratios which we be­
lieve are the most significant ones. The variations and the trends over
several years, and various other observations have been indicated. How­
ever, there has been no attempt made to explain the basic reasons for
and the results of these changes. We feel that we are not qualified to
make such observations, and therefore we have le ft the interpretation of
the data compiled to the businessmen interested in studying conditions
within this industry.
London
Ap ril 22, 1950 M.R.H.
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2
ABSTRACT
The story of most of the paper Companies in the early nineteen hun­
dreds is one of reorganization and refinancing. In every reorganization,
more capital was invested, more m ills were built, and'additional lim its
were secured. After the firs t world war, Quebec and Eastern Canada exper­
ienced an unprecedented growth in newsprint investment. Between 1919 and
1930, the daily capacity of newsprint machines in Canada increased by
6,072 tons or 220 per cent.
Co-operation between m ills firs t arose as a result of joint dealings
with sales companies, and the era of consolidation commenced in 1925. An
example of this is the consolidation of the St. Lawrence Paper, Brompton
and Lake St. John into the St. Lawrence Corporation.
From a figure of |71.80 a ton in 1927, the price of newsprint dropped
to |57 in 1931 and drifted steadily downward. Postwar expansion by bonds
had le ft the overcapitalized companies in a vulnerable position. During
the 1930's, faced with falling revenues and unsound financial structure,
almost all of the important newsprint companies in Eastern Canada de­
faulted on their bonds and some went into receivership.
Since that time they have followed the policy of reducing their
bonded indebtedness and fixed charges. Such action has placed them in
a much more favourable position than formerly.
On the whole, the companies chosen for this survey are at the present
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3
time producing mainly newsprint and sulphite pulp. Consolidated Paper is
the most diversified of the group.
During the last thirty years, the manufacture of pulp and paper has
consistently been one of the most important industries in Canada. Al­
though overtaken by other industries occasionally, it has been able to
regain its important position with little trouble. The industry has been
a great source of foreign capital.
D.B.S. shows the production of wood pulp and paper as
1937 - 226 m illion 1943 - 344 m illion
1938 - 184 1944 - 369
1939 - 208 1945 - 398
1940 - 298 1946 - 528
1941 - 334 1947 - 707
1942 - 336
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