Page:Hints About Investments (1926).pdf/164

 dividends and bonus on the ordinary shares, making a total of £333,000 distributed.

Reserve Funds receive £150,000 in all, but, as the amount carried forward is reduced by £27,000, the net amount actually put away is £123,000.

Thus, out of a total profit of £456,000 the directors distribute £333,000 (or roughly 73 per cent.) and hold back £123,000, or roughly 27 per cent.

The calculation can be made still more favourable if we deduct from the Profit the sum due to the Preference shareholders, whose rights and position will be discussed in a later chapter. Preference dividends can be "passed" (that is to say, left unpaid), without involving a company in bankruptcy, since they are a payment due to proprietors or partners in the business and not to creditors; but as in this case they are cumulative, which means to say that until they are paid the ordinary shareholders can receive no dividend, and as any prosperous company pays its preference dividends as a matter of course, and as punctually as the interest on its debts, it cannot be contended that they are an optional payment in the same sense as dividends paid on ordinary capital.

On this system we arrive at £388,000 as