Preferred Stock
Preferred Stock is a type of equity that has characteristics of both debt and equity. Preferred Shareholders typically have:
- Fixed dividend payments, like interest on debt
- Priority over Common Equity in the event of liquidation
- No voting rights
Why do we add it to Equity Value to calculate Enterprise Value?
Preferred Stock is added to Equity Value since it is represents a financial claim on a company, similar to debt. Ensuring that EV reflects the total value of the business.
In the room
Preferred sits between debt and equity, which is exactly why it appears in the enterprise value bridge. It has a prior claim over common shareholders, so it gets added when moving from equity value to enterprise value.