How to Understand Preferred Stock in a Growing Business

How to Understand Preferred Stock in a Growing Business

Before attempting to understand the valuation of preferred stock you must first have an understanding the term and what makes preferred different from other types of stock.

How to Understand Preferred Stock in a Growing BusinessBy understanding what you are dealing with, you are then able to discuss your needs with a certified valuation service which will help you understand the value of your preferred stock. If you are not familiar with the various terms and protocols involved with different types of stocks it can be very confusing.

The actual definition of preferred stock is equity that has priority over common stock with respect to dividend payments and asset distribution during liquidation. There are some characteristics of both common stock and debt with preferred stocks, making preferred a type of hybrid stock. It can be challenging when planning and checking your assets to designate specific types of stocks to maintain a healthy balance without knowing the value.

It may be confusing as to how a stock could be considered a debt, but the dividends on preferred stock are typically fixed and the claims of those preferred stockholders go against the assets of the company. If this still seems like a foreign language to you, you are not alone; this is why companies have accountants and valuation services to track their assets, debts, stocks and financial investments.

The hybrid personality of preferred stock is what can make it difficult to accurately value this type of investment. While the idea of offering public and private stocks is a good one, it is important that you know exactly how each type of stock works and what you can do to ensure that you always know the value of your company for all forms of equity stock or units.

A certified valuation service can take the pressure and worry from learning formulas and applying valuation models.  They return comprehensive reports with specific values for all forms of stock or units within your company.

Category : Financials

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About the Author: Dale Richards

Dale S. Richards specializes in management, marketing, operation optimization & business valuation consulting and is a 20+ year turnaround expert.  He has implemented success concepts into results in 150+ co

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