The ordinary business does not suffer from loss by fire more than once or twice in a lifetime. When a loss comes, he should be prepared to see that he obtains every cent rightfully due him. While it is an acknowledged fact that more losses are overpaid than underpaid, in case of a small loss it is probably as satisfactory a way to trust entirely to the fairness of the adjuster. In case of a large or total loss, if the insured shows that he fully comprehends how the amount of his loss is being determined, he will not fail to receive better consideration at the hands of the company's representative. If not satisfied with a loss, as adjusted, it is best to let it go to arbitration.
The following rules and formulas are those used by adjusters in ascertaining the extent of a loss on stocks or personal property, and show the methods adopted by them in such cases. There is nothing new about them, and they are perfectly familiar to everybody, and are to be found in any arithmetic used in the common schools in our land. Every school boy has learned them, but their application to the adjustment of losses may be something that those who may not have had experience in this particular line of business will find of assistance. It should be remembered that cost to the assured is the basis of the loss sustained, but not necessarily the measure of the damage or loss; this may be more or less according to the circumstances surrounding each case, and is undoubtedly affected by depreciation or increased value.
The question of values was formerly one that perplexed even the most expert adjusters, and many complications have, in former years, arisen because of the difference of opinions relative to the value of merchandise in various or different hands; but for many years the rule has prevailed, and common custom may be said to have regulated this matter, until at the present time it is generally conceded by all that the question of value depends materially and almost entirely upon the business of the party in whose possession the merchandise is found. The insurance contract contemplates only indemnifying a party in case of fire against absolute loss, and the cost to him is the basis of the estimate of the loss. In the case of a manufacturer the basis of the estimate would be the cost of production. If the merchandise is in the hands of a wholesale dealer, then the basis of the estimate would be the price paid the manufacturer. If the merchandise is in the hands of a retail dealer then the value would be increased, and the basis of the estimate would be the price paid the wholesale dealer. The same merchandise in the hands of the consumer would be enhanced in value, and the basis of the estimate would be the retail dealer's price.
It will therefore be observed that the same merchandise in various hands has different values, and in dealing with the various losses that it may have four values, according to the business the party is engaged in who has sustained a loss, viz.: manufacturers, wholesale dealers, retail dealers and consumers.
net cost. The entire cost of merchandise after all deductions are made.
gross purchases. The amount of merchandise purchased at gross cost.
net purchases. The amount of merchandise purchased excluding freights, etc.
gross stock. The amount of merchandise on hand, valued at gross cost.
net stock. The amount of merchandise on hand, valued at net cost.
gross sales. The amount of merchandise sold.
gross inventory. The amount of merchandise invoiced at gross cost.
net inventory. The amount of merchandise invoiced at net cost.
expense account. All expenditures incident to the business.
gross profit. The entire excess of pecuniary value received from the sale of merchandise, over its cost.
net profit. The excess of pecuniary value received from the sale of merchandise over its cost, less all expenditures.
loss. The difference between the gross cost and the prices received. Purchases, less net sales, are equal to the stock on hand.
Purchases, less stock on hand, are equal to the net sales.
Purchases, less present inventory, added to the gross profit, are equal to the gross sales.
Net sales, and stock on hand, are equal to the amount of net purchases.
Net sales, added to the gross profit, are equal to the amount of gross sales.
Gross sales, less gross profit, are equal to the amount of net sales.
Gross sales, less gross profit, added to present inventory, are equal to the amount of purchases.
When the amount of gross sales and rate per cent of gross profit are given, then to ascertain cost:
Divide the amount of sales by 1 (one dollar) plus the rate per cent of profit, and the quotient will be the net cost (this is simply the old rule to ascertain present value); or the same result may be obtained by dividing the amount of sales by the aliquot part of one hundred representing the per cent of profit, and the quotient will be the net cost. If the goods are sold at a loss, then to ascertain cost, divide the amount of sales by 1 (one dollar), less the per cent of loss, and the quotient will be the net cost; or from gross sales, deduct gross profits and the remainder will be the net cost.
When the amount of gross sales, rate per cent of gross profit, and net inventory are given, to ascertain amount of purchases:
Divide the amount of sales by 1 (one dollar), plus the rate per cent of profit, and the quotient will be the amount of net sales (this is the old rule for ascertaining present value). Add net sales to the inventory, and the sum will be net purchases.