sinking fund policy the sinking fund reserve among the net worth items.
This shows a reservation of profits for this purpose and therefore
their investment in the business. The reserve is not a covered reserve,
however, no definite assets being set apart as representing these
profits, or, if set apart, as having been already applied to the
cancellation of a portion of the debt. This latter phase is explained
more fully on page 458 following. Unless the assets have been applied
in this way, the balance sheet gives no assurance to the creditors that
funds will be available for the settlement of their claims at maturity.
It may be that the reserved profits are being used for further
extensions of plant and so will not be easily available at maturity
of the obligations. Again they may be invested in increased stocks of
current assets and so be readily available. Only an analysis of the
balance sheet will show the financial policy that is being pursued.