Why aren't preference shares included in market cap calculations?
And as a result you need to add them back in to get EV..?
Trending Content
| +3,993 | Bank of America - Juniors Strike to start Monday May 6th | 417 | 24m | |
| +844 | BOFA ALREADY TRYING TO COVER UP THEIR TRACKS | 79 | 23h | |
| +596 | This is a dark day for Wall Street. | 46 | 12h | |
| +437 | BofA Associate Death - WSJ, FT, CNBC, Bloomberg | 48 | 1s | |
| +191 | How to strike without being fired. | 21 | 17h | |
| +184 | Analyst at Bofa FIG-Thoughts | 28 | 23h | |
| +169 | Big Layoff at Barclays - 5/1/24 | 88 | 1d | |
| +165 | Hey WSJ, BBG, CNBC, FT, it's been more than 72 hours that this BofA IBD Associate was reported dead | 23 | 11h | |
| +150 | BofA List | 37 | 10h | |
| +132 | Reporters, please post your info in this thread for visibility so people can easily reach out. | 4 | 2h |
Career Resources
Market Cap is just what a company would cost you if you bought all the common shares.
Enterprise Value is how much it would actually cost in real terms to buy a company.
EV = Market Cap + Debt + Pref Shares - Cash
Because they are not common shares.
Preferred shares are not included in your standard market cap calculation because their characteristics are more like debt, thus equity value to common shareholders is reduced by amounts owed to preferred shareholders. With publicly traded companies, preferred shareholders are essentially debtholders entitled to a periodic (generally annual) interest payment equal to the par value of the preferred shares multiplied by a pre-stated "preferred dividend" percentage, determined at issuance. For instance, if I hold Series A Preferred shares in XYZ Company and I bought them at $100 per share with an 8% cumulative annual dividend, I am entitled to $8 from the company every year. Very similar to an 8% annual coupon rate (interest) on bonds with a face value of $100...
To get EV, treat preferred shares just like you would debt. Add back the market value of the preferred shares outstanding, not the book value. So:
Enterprise Value = Market Cap + Debt + Preferred Shares Outstanding - Cash & Cash Equivalents
No par value preference shares (Originally Posted: 03/31/2015)
Am I right in thinking that NO PAR VALUE pref stock can be thought of as common stock just with different rights?
Question comes from looking at Vale SA - they incl. pref stock in market cap calculation and so do all the service - Bloomberg, Thomson etc
Nihil magnam praesentium molestiae illo suscipit. Non dolor maxime quis distinctio maiores aut ut sunt. Tempora rerum facere aut. Enim dicta recusandae enim explicabo cum.
Animi autem voluptatem ut earum enim. Laudantium voluptate non mollitia blanditiis ut a omnis. Sint sint quibusdam deserunt nihil consequatur. Iste qui fugit dolores ex atque qui. Soluta eius est nihil minus.
Optio cumque aliquid cum veritatis inventore. Magnam sed nihil repudiandae doloribus. Libero perspiciatis magni est harum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...