Preferred stock is a type of ownership in a company. Preferred stockholders typically have priority in receiving dividends before common stockholders and have priority in getting paid if a company files bankruptcy. A company reports the amount of money it has raised from issuing preferred stock in the stockholders’ equity section of its balance sheet. Total stockholders’ equity represents the ownership interest of all stockholders in the company. If you know a company’s total stockholders’ equity, you can determine the book value, or accounting value, of its preferred stock.
1. Find a public company’s balance sheet in either its 10-Q quarterly reports or in its 10-K annual reports. You can obtain these reports from the investor relations section of a company’s website or from the U.S. Securities and Exchange Commission’s online EDGAR database.
2. Identify the amounts of total stockholders’ equity, treasury stock, retained earnings, common stock and additional paid-in capital from common stock, listed in the stockholders’ equity section of the balance sheet. Treasury stock is common stock a company has repurchased from investors, which reduces stockholders’ equity. Retained earnings are profits reinvested in the company. For example, assume a company has $100,000 in total stockholders’ equity, $20,000 in treasury stock, $70,000 in retained earnings, $1,000 in common stock and $40,000 in additional paid-in capital from common stock.
3. Add together total stockholders’ equity and treasury stock. In the example from the previous step, add $100,000 and $20,000 to get $120,000.
4. Subtract retained earnings, common stock and additional paid-in capital from common stock from your Step 3 result to determine the book value of preferred stock. Continuing with the example, subtract $70,000, $1,000 and $40,000 from $120,000 to get $9,000 in preferred stock.
- Preferred stock’s book value on the balance sheet may differ from its market value.
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