Liquidating value of preferred stock
If the dividend percentage on the preferred stock is close to the rate demanded by the financial markets, the preferred stock will sell at a price that is close to its par value.
In other words, a 9% preferred stock with a par value of being issued or traded in a market demanding 9% would sell for .
The holders of these preferred shares must receive the per share dividend each year before the common stockholders can receive a penny in dividends.
But the preferred shareholders will get no more than the dividend, even if the corporation's net income increases a hundredfold.
For example, assume a company has 10 million shares of preferred stock outstanding with a total liquidation value of 0 million.
Check if the company reports any dividends in arrears in the same section, and identify the amount.
Divide your Step 4 result by the number of preferred stock shares outstanding to determine the book value per share of preferred stock.
If it liquidates in bankruptcy, you might be left empty-handed.
When it comes to dividends and liquidation, the owners of preferred stock have preferential treatment over the owners of common stock.
On the other hand, if the market demands 8.9% and the stock is a 9% preferred stock with a par value of , then the stock will sell for slightly more than as investors see an advantage in these shares.
To comply with state regulations, the par value of preferred stock is recorded in its own paid-in capital account Preferred Stock.
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The dividend structure usually has rights attached to it, such as whether the shares participate in enterprise earnings.