A company's common stock offers investors dividends proportional to the company's profits. Preferred issued stock also offers dividends, but these returns are not linked to company performance. The firm pays preferred stockholders fixed returns per share and makes this payment before distributing the net income among the common stockholders. Preferred stock, unlike common stock, doesn't represent equity that investors have contributed, and the shares don't confer voting rights on shareholders.
1. Multiply the number of common shares that the company has issued by the earnings per share that the investors receive. For example, if 10,000 shares each receive 90 cents, multiply 10,000 by 0.90, which is $9,000.
2. Subtract this sum from the company's net income for the period. For example, if the company has made a net profit of $12,000, subtracting $9,000 from $12,000 results in $3,000.
3. Divide this income that goes to the preferred shareholders by the dividends that the company has promised for each share. For example, if the company has guaranteed dividends of $1.20 per share, divide $3,000 by $1.20, resulting in 2,500. This is the number of preferred shares that the company has issued.
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