While this is a serious handicap, it is an advantage to the man who arranges his farming methods so that he can secure an income from some other source in the interim. The young farmer will do wisely to so arrange his farm methods that a portion, perhaps the major portion of his farm, will give him quick returns while making some long-time investments, which later in life will give him a greater return because so few people are sufficiently forehanded to make them.
CHAPTER XI
HOW TO ESTIMATE PROFITS
No man who engages in manufacturing or merchandising knows how much he is going to make annually during life. Much less does he know how much he will be worth when he dies. Neither does the man who works for a salary or practices some profession for fees know what his annual income will be even during the following decade. Neither one nor the other knows whether he will die a millionaire or a pauper. It is a problem too complex for any human mind to analyze. It is less certain than what the weather will be on this day next year, because it is the resultant of more variable factors.
In some respects there is more hazard in farming than in manufacturing or in merchandising, while in other respects there is much less. The profit which may be obtained from farming is neither easier nor more difficult to estimate than is that of other commercial enterprises. However, there is no business in which more foolish estimates are made as to the probable profits, except, perhaps, in mining.
The purpose of this chapter is not to give advice as to possible or probable profits, but rather to point out the general character of the data required for any individual problem, where the data may be obtained and how it may be applied.
There are two forms or methods of stating the financial gain that has been obtained from farming or other business ventures during a year or other specific period. The first may be called the interest on the investment method, and the second the labor income method.
With the interest on the investment method, all expenses may be subtracted from all the sales. From the cash balance thus obtained the increase or decrease in inventory may be added or subtracted. This balance may then be divided by the capital invested, to determine the rate of interest received.
The rate of interest method is the usual method in the commercial world. The prosperity of the railroad or industrial concern is judged by the rate of interest it pays its stockholders on the par value of the stock. The stock itself takes on the capitalization in accordance with the present and prospective dividends. The fact that this method is generally used in the commercial world is evidence that it is well suited to its needs.