The average shown by the 1,443 company reports examined during the four quarters ending June 30, 1925, came to 22.3 per cent. But the Economist arrives at its proportion by including preference dividends as part of the sum distributed out of net profit. It seems to me that one gets a fairer result by deducting preference dividend—as practically a fixed charge—from net profit in order to get the divisible balance. There is then the true balance left, which may be distributed in ordinary dividend or carried to reserve or added to the amount carried forward, and it is the division of this balance which is of some use as a test. On this basis the average performance of the 1,443 companies whose reports were investigated by the Economist works out at 72.2 per cent. to ordinary dividend and 27.8 per cent. to reserve or kept in hand.
As need hardly be said, the test is far from precise, for variations in the form of the companies' capitals and debts make the comparison, to some extent, misleading. But as a rough guide in a country where pitfalls are plentiful and signposts are mostly incorrect, it may be better than none. It leads us to the conclusion that the investor may be well advised to insist that any company in which
