When you own common stock in a company, you have a claim on the company’s earnings, or profits, based on the number of shares you own. If the company also has preferred stockholders, they get their dividends before common stockholders see any money. To find out what’s left after preferred stockholders get their cut, you can calculate earnings available for common stockholders. A company uses this money to pay dividends to common stockholders -- if it chooses to -- and to reinvest in its business. To gauge a company's performance, It’s important to review its earnings available for common stockholders each quarter.
Download a company’s quarterly report on Form 10-Q or annual report on Form 10-K for the desired accounting period from the investor relations section of its website or from the U.S. Securities and Exchange Commission’s online EDGAR database.
Locate the income statement and the statement of stockholders’ equity in the financial report.
Identify the amount of net income or net loss the company reports toward the bottom of the income statement. An income statement shows a net loss in parentheses. For example, assume a company generated $1 billion in net income during its most recent quarter.
Look up the amount of preferred dividends the company declared during the period on its statement of stockholders’ equity. The statement shows this amount in parentheses to designate that the payments reduce stockholders’ equity. In this example, assume the company declared $50 million in preferred dividends.
Subtract the company’s preferred dividends from its net income or loss to determine its earnings available to common stockholders. Treat a net loss as a negative number. Concluding the example, subtract $50 million from $1 billion to get $950 million in earnings available to common stockholders.
- If a company has no preferred stock, its net income represents its earnings available for common stockholders.
- Calculate a company’s earnings available for common stockholders in previous quarters to identify any positive or negative trends. Increasing earnings available for common stockholders is typically good for a company’s common stock.
- You can also divide earnings available for common stockholders by the number of shares of common stock outstanding -- reported on the balance sheet -- to see how much the company earned for each share of common stock.
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