Archive for March, 2011

Calculating the Preferred Participating Dividends

Thursday, March 24th, 2011

A dividend is the part of the company’s net profit that it returns back to it’s stockholders. Preferred stockholders are a special section of investors, who are given higher preference over common stockholders. Such stockholders may include private investors & venture capital firms. A different kind of math is involved while calculating the percentage of profits that goes to the preferred stockholders. Also, preferred stockholders can receive a larger chunk of the profits, apart from the fixed payout ratio, in special case scenarios.

In the stockholder’s equity section in the company’s balance sheet, you can find the amount of preferred stock & common stock. Then calculate the percentage of preferred stock over the company’s total stock. Find out how much dividend is the company paying out. From this you can calculate the part which is routed to the preferred stock. You can also calculate the extra dividend which can be fetched to the preferred investors.