Priority percentages are generally calculated when considering an investment in a joint-stock company with the intention of finding two limits, which may be defined as follows:

The lower limit is the percentage of net profits (after all expenses other than British taxation) which would just suffice to pay all prior charges and dividends on stock ranking prior to the stock under consideration.

The upper limit is the percentage of net profits which would just suffice to pay the dividend on the stock under consideration and all prior charges and dividends.

Now that profits tax is as much as 30% with a rebate of 20% on profits not distributed, it is important to consider to what extent profits tax should be treated as a prior charge.

An example of what may be described as the ‘normal’ method of calculating priority percentages is given on p. 186 of the new textbook, Principles of Finance and Investment, by L. G. Whyte, F.F.A. The whole of the profits tax, allowing for the rebate on profits not distributed is shown as a prior charge to all dividends. This appears to be the method used by the two principal statistical services.