ment are shown, two kinds of profits corresponding thereto were computed as follows:

1. Milling net income, which is the profit received by the company from all sources except outside investments, was used for computing return on milling investment. To obtain the milling profit, all the miscellaneous gains and losses (before deducting interest on bonds and other borrowed money) were added to or deducted from the total operating profit of the company according to whether they showed a gain or a loss. The income from outside investments was then deducted to obtain the milling profit.

2. Company profit, which is the net income that accrues to the stockholders collectively as a company before the payment of income or profits taxes, was obtained by deducting the interest on bonds and other borrowed money from the milling profit and adding back thereto the income from outside investments.

Milling investment and profits are shown for 108 different companies (107 being the maximum in any one year), whereas the company investment and profits are shown for 182 different companies (173 being the maximum in any one year).

Section 6. Monthly fluctuations in borrowed funds.

Considerable amounts of borrowed money are used in the milling business. These are largely short term loans and fluctuate from month to month, being lowest in the middle of the calendar year when the quantities of wheat and flour carried on hand by the milling companies are lowest.

The monthly fluctuations of 121 flour milling companies are shown in the following table:

TABLE 8.-Monthly borrowings of 121 flour milling companies, 1919-1921

The above table shows that for the three years combined the lowest borrowings were in June and July, and that May, June, July, and August were the four lowest months. During each year there was a wide variation between the highest and lowest months. The largest monthly total for the three years combined was 155 per cent greater than that for the smallest monthly total. The three-year fluctuations are probably fairly representative, for part of the period wheat prices were very high and part of the period they were low. In times of high prices, of course, the amount of money borrowed to carry highpriced grain and high-priced flour would naturally be larger than when wheat prices are low.

The table shows that for the three years combined the borrowings were heaviest during the six months beginning with September and lightest during the preceding six months.

Section 7. Milling investment, net income, and rate of return.

As has already been shown (sec. 5), the milling investment was obtained by deducting the outside investments from the total investment. The effect of the inclusion of outside investments on the investment, net income, and rate of return of the milling companies would be so slight that it is unnecessary to discuss at length both total investment and milling investment and the return on each. As the milling investment is the investment of special interest to the millers and those studying the milling business, brief mention only is made of the total investment, the main discussion being based upon the milling investment, net income, and rate of return thereon. It is of interest to note the return on outside investments, however, and the effect of outside investments on the milling investment of the milling companies. This is shown in the following table:

TABLE 9.-Net income for total, outside, and milling investment, and rate of return, 1919-1922

The above table shows that the inclusion of outside investments exerted on the whole an unimportant influence upon the rate of return except in 1921. In every year its effect was to reduce slightly the rate of return, except in the poor year of 1921, when its effect was to increase it from 1.6 per cent to 2 per cent. This was due to the fact that, although the outside investments were less than 7 per cent of the total investment in that year, the rate of return thereon was 7.3 per cent, as compared with 1.6 per cent on the milling investment alone. In fact, the surprising feature disclosed by a study of the

outside investments is the high rate of return in every year except 1920, when it was only 4.4 per cent. In the other three years it varied from 7.3 per cent in 1921 to 8.5 per cent in 1922, with an average for the period of 6.9 per cent. Many of the companies had large holdings of Liberty bonds on which they received approximately 41 per cent interest. The large return shown above was due to the fact that two of the companies in the northwestern district had very large returns from other outside investments.

Section 8. Milling investment, net income, and rate of return, by districts.

The method of arriving at the milling investment and net income was described in section 5. The investment showed a marked increase in 1920 over 1919, but there was a considerable decrease in both 1921 and 1922 over the high year of 1920. In fact, in most of the districts the investment in 1922 was less than in 1919.

The return on investment for all districts combined showed an increase in the prosperous year 1920 over 1919, although the companies with a business year closing December 31 showed a very marked decline, as shown by the following statement:

1919

1920.

1921

1922

1 Loss.

Per cent Per cent Per cent Per cent Per cent Per cent Per cent Per cent Per cent

This decline in the returns from the milling business, in the case of the companies with a business year closing June 30, was not reflected until 1921, when they barely showed a profit, whereas the December 31 companies in 1921 showed a profit, although a small one, which was practically the same as for the previous year. This situation was due to conditions in the wheat flour markets. Export wheat, for instance, reached its highest price in May, 1920, and then a steady decline set in which lasted (with only a few upturns) for a year and a half, when the price was only a little more than a third of that of May, 1920. This great decline was naturally reflected in heavy inventory losses, particularly in flour, and generally resulted in an actual loss on the year's operations in which the greatest decline took place. In 1922 when prices were more stable both groups of companies showed a profit, which was 10.9 per cent in each case. The following table shows the average milling investment, net income, and rate of return for 108 different companies (maximum in any one year 107) engaged in the flour milling business, by districts:

TABLE 10.—Milling investment, net income, and rate of return, by districts, 1919-1922

The above table shows an average return for all districts combined of 13.9 per cent in 1918, 14.9 per cent in 1920, 1.6 per cent in the bad year of 1921, and a recovery to 10.9 per cent in 1922. The highest rate of return was in a different district in each year, southwestern in 1919, mountain and coast in 1920, northwestern in 1921, and southeastern in 1922. Conditions were more stable, however, in the large producing northwestern district, which showed next to the highest rate of return in 1919 and 1922, was third in 1920, and was highest in the very poor year of 1921, with returns of 13.7, 12.9, 14.7, and 4.7 per cent, respectively. In 1921 only one other district showed a profit, the central and eastern, with a return of 2.8 per cent. The other three districts showed losses, varying from 4.6 per cent in the mountain and coast district to 0.7 and 0.3 per cent in the southeastern and southwestern districts, respectively.

Section 9. Milling investment, net income, and rate of return, by principal States.

The two most important flour milling States are Minnesota and Kansas, although New York, Illinois, and Missouri are also large producers of flour. A study of the return on investment in these two States as compared with the country as a whole is consequently of special interest. The net income for these two States for the period is practically three-fifths of the net income for all districts, whereas the investment is only a little more than half of the total investment for all districts, so the rate of return for the two States is somewhat higher than the return for all districts combined.

The following table shows the milling investment, net income, and rate of return for the companies covered in the States of Minnesota and Kansas, compared with all other States.

TABLE 11.-Milling investment, net income, and rate of return for the States of Minnesota and Kansas, compared with all other States, 1919-1922