Evening star., 1942-08-23
BY LAURENCE II. SLOAN,

Editor in Chief. Standard and Poor's Corp.
NEW YORK, Aug % wide
World Enough large industrial
concerns have reported their operat-
ing results for the first half of 1912
to convey rather accurate idea of
the extent to which profits declined.
and to say that the decline was dras-
tic is to put it rather mildly.
The following figures tell the
story. They report composite data
for group of large industrial cor
porations, which in the first half of
the current year, had net income
taxes Of almost $1,000, 100000.
First six
1871. is4a. Change. .
Net income before taxes
and special reserves sb7 s95 +
Indicated net income
after taxes and
WAYS and Means Committee bill As per
cent normal tax, 90 per cent excess profits
tax.
Yet. there are several reasons for
the belief that actual earnings for
the year l942 as a whole will not be
off as much as those for the first
half.
Conversion Costs Cited.
In the first place several very large
companies had not finished their
conversion from peace products to
war products until well along In the
first half. General Motors and
Chrysler are examples of this type.
Whereas the net before taxes of
the great majority of industrial
companies was up in the first half
this year as compared with the same
period last year, General Motors
net before taxes was down 81 per
cent and ChrySler's was down 81 per
cent-chiefiy because of the un-
aVoidable delay in switching produc-
ton lines from automobiles to war
goods. AS a result, indicated net
after taxes in the cases of these two
important companies was down by
more than half.
In the second place a number
OF companies in the first half of
last year did not set aside sM-
ficiently large tax reserves. This
had to be corrected at the year end.
But under-reServing in the first half
OF last year make this years first
half figures appear all the more un-
favorable.
May Be Scaled Down.
And, in the third place, 1t Is
possible that tax reserves in the first
half OF this year on the basis of the
House Ways and Means Committee
bill, may be larger than needed.
There has been some evidence that
the Senate Finance Committee is
thinking in terms of 40 per cent
normal tax, rather than As per cent,
and that 1t might not be COM
pletely adverse to a scaling down
IN the Houses excess profits tax
proposal
Yet even with all these "ifs" and
butts the truth remains that the
tax collector is going to take a ter
rlflc bite out Of this years indus
trial profits.
With the most favorable tax bill
which can possibly be expected for
1912, and with the best luck DOS
slble on all other counts (steady
supply OF raw materials, favorable
prices, etc., 1t now seems likely
that the average net income of
Leading industrial corporations this
year will be Is to 30 per cent smaller
than in l941. Common dividends
seem likely to contract by a some
what similar percentage.
Although leading tndustrials. on
the average, will profit to the extent
OF few percentage points if the
flnal normal tax for 1912 is 40 per
cent instead of As per cent, the utili-
ties will gain much more conspicu-
ouSly by such change.
Big Difference Seen.
On As per cent normal and 90
per cent excess profits tax rate.
the indicated 1912 composite net
income of all leading operating
utilities will run some 27 per cent
under last year.
But If the normal rate is dropped
10 40 per cent the indicated decline
as compared with last year will
amount to no more than 20 per
cent and perhaps may be even a
bit less than that.
While we have been discussing
the trend of industrial profits, hav-
Ing mentioned utilities, Just a word
on the railroads, where the prof1ts
trend has been sharply upward:
Under any kind of a probable
tax bill the 1912 net income of
class railroads will be we'll above
194l-probably 20 to Is per cent