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Measures the percentage of preferred stock to all stock issued by a company, exposing the level of risk to common stockholders.[sc:kit02 ]
Preferred Stock to Stockholders Equity Formula
Explanation of Preferred Stock to Stockholders Equity
The Preferred Stock to Stockholder’s Equity ratio shows the percentage of the total Preferred Stock Value compared to the Total Stockholders Equity. This ratio uncovers situations where a company may have too much emphasis on preferred stock, creating more risk to common stockholders.
Since preferred stock usually is given priority over common stock, preferred stockholders are often given dividends and events causing liquidation of the company may result in a return of some or all of the value of their preferred stock.
Importance of Preferred Stock to Stockholders Equity
A low, or decreasing Preferred Stock to Stockholder’s Equity ratio is a good sign the company is maintaining a low amount of preferred stock, and can indicate the common stockholders may be valued more by the company. Notes to the accompanying financial statements will list details of preferred stock.