Quantitative measures;

              2 HASKINS & SELLS July
Quantitative Measurements
THE INFLUENCE of economic changes
on the financial condition of individual
enterprises is nowhere reflected more
sharply than in stocks of merchandise.
Cash may show an increase or decrease in
amount when compared at two different
dates and the change may have no second­ary
significance. Accounts receivable ap­pearing
in a lesser amount at the later of
two dates indicate, from an economic point
of view, that the enterprise at that time has
less capital invested in that asset. Changes
in inventories have a dual significance.
They are stated in terms of dollars, but the
dollar must be reinterpreted in the light of
current prices.
The period from 1921 to 1929 was one of
increasing prices. During that period the
general price level mounted steadily and
generously. The problem constantly pre­sented
was one of replacements at higher
prices. The same quantities at successively
later periods showed increasingly larger
numbers of dollars tied up in inventories.
The immediate future, from a business
viewpoint, was not so troublesome, be­cause
the general movement was upward,
and there was reasonable prospect of sell­ing
goods at increasingly higher prices.
Now the situation is reversed. Prices
of cattle, for example, have declined to the
lowest in twenty-five years. Two years
ago, sirloin steak was selling at fifty-one
cents a pound. On June 10, 1931, it sold
at thirty-five cents a pound. Last year, in
June, prime ribs retailed at forty-three
cents a pound. Last week the retail price
was twenty-three cents. The purchasing
power of the retail meat-dollar has in­creased
about eighty-seven per cent. The
housewife with forty-three cents to spend
for prime ribs of beef, may have almost
two pounds now, instead of one pound a
year ago. The housewife with twenty-three
cents to spend now may have a pound of
prime rib roast, whereas last year she might
not have been able to buy any because of
the high price.
The dealer's inventory of one pound of
beef last year would have shown forty-three
cents invested in that commodity.
This year the inventory would show one
pound at twenty-three cents. Ostensibly,
there has been a reduction of forty-six and
one-half per cent. in the inventory. In
reality, the inventory has not been reduced.
The value of the inventory, based on cur­rent
prices, has declined.
This homely illustration suggests what
may be expected in most lines of business,
whether the inventory amounts to thou­sands
or to millions of dollars. Prices gen­erally
have been following the curve applic­able
to meats, as may be seen from consult­ing
the various price indices. Weekly aver­age
prices of representative commodities
for the month of May, 1931, show the
purchasing power of the dollar as 140.2, the
year 1926 being used as the basis for com­parison.
For the same month in 1930, the