# How to Calculate the Book Value of a Preferred Stock

When you own preferred stock in a company, you get dibs on dividends before common stock owners, and you get paid before them if the company sells off, or liquidates, its assets. A preferred stock’s book value per share represents the amount the company would pay out per share if it liquidates. Although you buy and sell preferred stock at the market price — which typically differs from book value — it’s a good idea to know its book value as a reference point, as shares that sell for steeply lower than book value might indicate financial trouble.

Download a company’s most recent annual report on Form 10-K from the investor relations section of its website or from the U.S. Securities and Exchange Commission’s online EDGAR database.

Look up the total liquidation value of its preferred stock and the number of shares of preferred stock outstanding in the notes to its financial statements. For example, assume a company has 10 million shares of preferred stock outstanding with a total liquidation value of \$200 million.

Check if the company reports any dividends in arrears in the same section, and identify the amount. Dividends in arrears are those that the company owes preferred stock owners for missed dividend payments. This applies only to preferred stock that is “cumulative.” A company doesn’t owe skipped dividend payments to owners of noncumulative preferred stock. In this example, assume there are \$30 million in dividends in arrears.

Add the liquidation value and the dividends in arrears to figure the book value of all preferred stock. In this example, add \$200 million and \$30 million to get \$230 million.

Divide your Step 4 result by the number of preferred stock shares outstanding to determine the book value per share of preferred stock. Concluding the example, divide \$230 million by 10 million to get a book value of \$23 per share of preferred stock. If the company liquidates, you’re technically entitled to \$23 per share, but only if there’s money remaining after creditors get paid. If it liquidates in bankruptcy, you might be left empty-handed.

#### Tip

• Because preferred stock pays dividends at a fixed interest rate, shares typically trade for more or less than book value primarily based on current market interest rates. But if investors sense problems with the company, shares can sink. For example, if the preferred stock in Step 5 trades for \$12 when its book value is \$23, there might be something wrong.