does equity value include preferred stock
Does equity value include preferred stock?
Short summary / lead
In most corporate‑finance and valuation contexts the question "does equity value include preferred stock" is answered: usually no. Equity value commonly refers to the market value available to common shareholders (common shares outstanding × market price or fully diluted shares × price), and preferred stock is treated as a separate claim that is typically added to enterprise value. That said, usage varies: some practitioners use broader terms such as "total equity value" to include preferred, while private‑company cap tables sometimes list preferred together with common as part of total equity. This article explains the definitions, standard formulas, important exceptions (convertible, redeemable, participating preferred), calculation examples, and practical checklist for analysts.
截至 2026-01-22，据 上市公司年报与监管文件 报道，分析师在并购与估值模型中普遍将优先股（preferred stock）作为独立项目处理，这一点在下文示例中将反复体现。
Why this matters: getting the placement of preferred stock right affects valuation multiples, leverage metrics, per‑share calculations, and how acquirers and investors negotiate payoffs.
H2: Key definitions
H3: Equity value (common usage)
Equity value commonly denotes the market value attributable to equity investors — most often common shareholders. Practically, analysts calculate equity value as:
- Equity value = share price × number of common shares outstanding
- Equity value (diluted) = share price × fully diluted share count (including in‑the‑money convertibles, options, warrants)
When you ask "does equity value include preferred stock," remember that the standard market practice treats equity value as the value for common holders unless the model explicitly states otherwise.
H3: Market capitalization
Market capitalization (market cap) is a shorthand for the market value of common equity: market cap = share price × common shares outstanding. Market cap is often used interchangeably with equity value in public‑company contexts, and therefore it generally excludes preferred stock unless the preferred is publicly traded and intended to be included in a stated equity measure.
H3: Enterprise value (EV)
Enterprise value measures the value of the entire firm available to all capital providers (common equity, preferred holders, debt holders, and minority interests). The standard relation is:
- EV = Equity Value + Net Debt + Preferred + Minority Interest (or Noncontrolling Interest)
This conventional bridge shows preferred being added to EV, which implies preferred is excluded from the typical equity value measure.
H3: Preferred stock
Preferred stock is a hybrid security with characteristics that can resemble debt or equity depending on terms. Typical features:
- Seniority to common in dividends and liquidation (liquidation preference)
- Fixed dividend rate or structured payout (sometimes cumulative)
- Possible convertibility into common shares
- Possible redemption rights or maturity (making it debt‑like)
These features determine whether preferred is treated like equity or debt in valuation.
H2: Standard valuation formulas and where preferred stock appears
H3: EV ↔ Equity value bridge
The conventional bridge used in valuation and transaction work is:
- Enterprise Value = Equity Value + Debt (gross) + Preferred + Minority Interest − Cash and Cash Equivalents
Rearranged:
- Equity Value = Enterprise Value − Debt − Preferred − Minority Interest + Cash
Under this standard, preferred stock is treated as a non‑common claim and therefore excluded from the typical equity value metric used to price common shares. This addresses directly the question "does equity value include preferred stock" by showing preferred is typically subtracted from EV when deriving common equity value.
H3: Alternative terminology
Some sources use different labels. For example:
- "Total equity value" or "aggregate equity value" may include preferred and other equity‑like claims.
- In private markets, "equity value" on a cap table often denotes total owner claims (common + preferred + certain shareholder loans).
Therefore, always check definitions in any model or report before assuming whether preferred is included.
H2: Why preferred stock is treated separately
H3: Claim hierarchy and cash‑flow rights
Preferred stock often has contractual cash‑flow rights (fixed dividends, liquidation preference) that give it priority over common equity. Because enterprise value aims to reflect the firm's value to all capital providers, preferred holders' contractual claims are recognized separately — similar to debt.
H3: Capital structure viewpoint
From a capital‑structure viewpoint, enterprise value captures total claims and therefore adds preferred to ensure that the sum of claims equals the firm's total value. If preferred were included in equity value instead, analysts could double‑count or misalign metrics when using enterprise multiples (e.g., EV/EBITDA) vs equity multiples (e.g., P/E).
H2: Variations and important exceptions
H3: Convertible preferred stock
Convertible preferred stock can complicate the "does equity value include preferred stock" question. Treatment depends on conversion economics:
- If convertible preferred is in‑the‑money (i.e., conversion into common yields higher value for the preferred holder than staying as preferred), analysts typically assume conversion and include the resulting incremental diluted shares in the fully diluted share count — effectively folding those preferred claims into common equity for equity value.
- If conversion is out‑of‑the‑money, convertible preferred is usually treated like non‑convertible preferred and excluded from equity value (and added to EV in the bridge).
Tax and voting effects, as well as anti‑dilution provisions, must be reviewed in the security terms.
H3: Participating or cumulative preferred
Participating preferred may receive a liquidation preference plus additional participation in residual proceeds with common; cumulative preferred accrues unpaid dividends. Both features increase the economic claim of preferred holders and typically justify treating preferred separately from common equity, because the cash flows to preferred are not simply residual.
H3: Mandatorily redeemable preferred / debt‑like preferred
Preferred with mandatory redemption dates or explicit maturity is often classified as debt for accounting and valuation purposes. In such cases, preferred is treated like long‑term debt in EV calculations.
H3: Private company and investor perspectives
In private‑company valuation or cap‑table analysis, "equity value" sometimes means total owner claims: common + preferred + shareholder loans. For investor reporting or negotiation, stakeholders may focus on "total equity value" (the pie to split among equity classes) rather than the common‑only equity value used in public comparables.
H2: Calculation approaches and examples
H3: From market data (public company)
To compute common‑equity market value: start with market cap (share price × common shares outstanding). Then:
- If preferred trades publicly and the analyst wants to compute total market equity, add market value of preferred.
- For EV calculation, add preferred market value to net debt and minority interest, subtract cash.
Example steps (public company):
- Market cap = $1,200m (common shares only)
- Debt (gross) = $400m
- Cash = $100m
- Preferred (market value) = $150m
- Minority interest = $0
EV = 1,200 + 400 + 150 − 100 = $1,650m
If the question is "does equity value include preferred stock" in this context: the equity value used above (market cap = $1,200m) excludes the $150m preferred; that preferred is explicitly added into EV.
H3: From firm value (algebraic derivation)
Suppose an analyst values the firm (EV) at $2,000m by DCF. To derive common equity value:
Equity Value = EV − Debt − Preferred − Minority + Cash
If Debt = $500m, Preferred = $200m, Cash = $100m, Minority = $0:
Equity Value = 2,000 − 500 − 200 + 100 = $1,400m
This example shows that preferred reduces the residual value available to common shareholders — demonstrating why preferred is excluded from the common equity value calculation.
Note again how this addresses "does equity value include preferred stock": under the conventional algebra, it does not.
H3: Fully diluted considerations
When preferred is convertible, analysts need to decide whether to convert for dilution purposes. A common approach:
- If convertible preferred is in‑the‑money at the transaction or valuation date, include converted shares in the fully diluted share count and treat the preferred claim as converted (i.e., included in equity value via share count).
- If it's out‑of‑the‑money, keep it as preferred and exclude from equity value (add to EV).
Also factor in potential anti‑dilution protections, pay‑to‑convert features, and whether conversion is mandatory upon a change in control.
H2: Impact on valuation metrics and ratios
H3: Equity multiples vs enterprise multiples
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Equity multiples (Price/Earnings, Price/Book) pair with equity value (market cap or diluted equity value). If preferred is excluded from equity value but yields cash flows included in earnings (rare), mismatches occur. Always align the numerator and denominator: if you use Equity Value in the numerator, use earnings or book metrics attributable to common.
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Enterprise multiples (EV/EBITDA, EV/Revenue) pair with operating metrics before financial structure. EV should include preferred when preferred has equity‑like claims that alter the firm’s capital provider structure.
If an analyst mistakenly includes preferred in equity value and also in EV, double counting happens and multiples become inconsistent.
H3: Effect on leverage and return metrics
Including preferred as part of equity reduces calculated leverage (debt/total capital) and can inflate return on equity (ROE) measures if preferred dividends are treated differently. Treating preferred as debt (if redeemable) or separating it (if true preferred) gives clearer leverage metrics.
H2: Treatment in M&A and transaction work
H3: Purchase price allocation and payoff
In M&A, acquirers need to determine whether preferred must be paid off, assumed, or converted. Typical outcomes:
- Preferred with mandatory redemption will usually be paid off at the stated amount (reducing the acquisition’s equity purchase price available to common).
- Convertible preferred may convert upon a qualified financing or change in control; conversion mechanics in the security terms determine whether the acquirer pays a premium to convert or honors the preferred claim.
Acquirers typically think in EV terms: purchase price (EV) minus assumed liabilities and adjustments gives the residual equity value to be paid to shareholders — preferred holders are part of that calculation unless converted.
H3: Negotiation and liquidation waterfalls
Liquidation waterfalls govern how proceeds are split. Preferred with liquidation preference may take the first tranche of cash, then any residual passes to common. In complex structures (participating preferred, multiple rounds), modeling the waterfall is essential to determine common value. This is another reason preferred is usually treated separately from common equity.
H2: Accounting and reporting considerations
H3: Balance sheet vs market treatment
Accounting classification (on the balance sheet) depends on terms. Some preferred is presented in shareholders’ equity, while mandatorily redeemable preferred is presented as a liability. Market/value treatment for EV/Equity considerations depends on economic substance, not only presentation.
H3: Disclosure and fair‑value measurement
Analysts should read prospectuses, 10‑Ks/10‑Qs, and cap‑table notes to determine:
- Dividend rate, cumulative status
- Liquidation preference and participation rights
- Conversion rights and formulas
- Redemption terms
These terms inform whether preferred is added to EV or folded into diluted equity.
H2: Common misconceptions and practitioner guidance
H3: Short answer restated
Does equity value include preferred stock? Short answer: generally no — equity value usually refers to common‑shareholder value and excludes preferred stock. But definitions vary: some reports label a broader measure "total equity value" that includes preferred. Always verify the definition used in any report or model.
H3: Practical checklist for analysts
Before deciding where to place preferred in a valuation, check:
- Is the preferred convertible, and is conversion in‑the‑money? If yes, model conversion and include diluted shares.
- Is the preferred redeemable or mandatorily repayable? If yes, treat as debt for EV calculations.
- Does preferred accrue cumulative dividends or participate in residuals? If yes, model cash flows accordingly and likely treat separately from common.
- Is a market price available for the preferred? If yes, you can add market value of preferred when building EV.
- What does the source (report/model) define as "equity value"? Look for glossary/notes.
H2: Examples and short numerical illustrations
H3: Simple numeric example (preferred excluded from equity value)
Company A — basic facts:
- EV (from DCF) = $1,500m
- Debt = $300m
- Cash = $100m
- Preferred = $200m
- Minority interest = $0
Equity Value = EV − Debt − Preferred + Cash = 1,500 − 300 − 200 + 100 = $1,100m
Common share price and dilution:
- Common shares outstanding = 55m
- Basic share price implied = 1,100 / 55 = $20.00 per share
In this example the preferred is not included in equity value; it reduces the residual available to common.
H3: Convertible preferred example (conversion vs non‑conversion)
Company B — facts:
- Convertible preferred outstanding: 2m shares, convertible into 10m common shares (5 common for 1 preferred)
- Current common share price = $30
- Conversion breakpoint: if converted, incremental 10m shares dilute existing common. Value to preferred holder if not converted: redemption at $200m.
Scenario 1 — conversion favorable:
- If conversion yields a pro rata equity stake more valuable than $200m, holders will convert. Suppose market perceives conversion is in‑the‑money: 10m × $30 = $300m > $200m redemption value — conversion likely. Analysts include 10m in fully diluted shares and do not add the $200m preferred as separate claim in EV bridge (preferred value is represented through diluted equity).
Scenario 2 — conversion unfavorable:
- If common share price falls to $15, conversion value = 10m × $15 = $150m < $200m redemption value — converters likely stay preferred. Analysts exclude preferred from equity value and add $200m to EV as preferred.
This illustrates why the answer to "does equity value include preferred stock" can change with security economics.
H2: See also
- Market capitalization
- Enterprise value
- Capital structure
- Convertible securities
- Liquidation preference
- Fully diluted shares
H2: References and further reading
- Standard corporate finance textbooks and practitioner notes (accounting and valuation treatises) cover these conventions.
- Practitioner guides from valuation training providers and university finance faculties outline the EV ↔ Equity bridge and preferred treatment.
- For up‑to‑date terms and concrete numbers, check company filings (10‑Ks/10‑Qs, prospectuses) and cap‑table exhibits.
Note: As of 2026‑01‑22, analysts commonly cite regulatory filings and company prospectuses when resolving preferred treatment; check the issuer's most recent filings for exact terms.
H2: Appendix: terminology and quick formula summary
Quick formulas
- Equity Value (common) = Share price × Common shares outstanding (or fully diluted shares for diluted equity value)
- Market Capitalization = Equity Value (common)
- Enterprise Value = Equity Value + Debt + Preferred + Minority Interest − Cash
- Equity Value = Enterprise Value − Debt − Preferred − Minority Interest + Cash
Quick checklist: when valuing or modeling preferred
- Read terms: conversion, redemption, cumulative, participating
- Check market values for preferred (if publicly traded)
- Decide treatment: converted (include in diluted equity) vs non‑converted (add to EV)
- Align multiples: equity multiples use equity value; enterprise multiples use EV
Further action
If you are building a valuation model or preparing transaction materials, always document the treatment of preferred in your assumptions section. If you are tracking tokens, on‑chain assets, or treasury holdings on Bitget or with Bitget Wallet, be sure to reconcile accounting classifications with market measures.
Explore Bitget tools
To track market data and manage portfolio holdings in a compliant way, consider Bitget exchange for trading and Bitget Wallet for custody and aggregation of assets. Use platform reporting and position exports to reconcile holdings across equity‑like instruments and crypto assets.
Further exploration and practical tips
- When reading third‑party research, verify the definition of "equity value" used. If the report is ambiguous, contact the author or check the model appendix.
- In private deals, model the liquidation waterfall explicitly to determine outcomes for each security class.
- For convertible instruments, simulate both conversion and non‑conversion scenarios to show sensitivity of equity value to market moves.
更多实用建议：若需模板或列举不同优先股条款的案例，请在平台内搜索或联系数据与研究团队以获得标准条目与可编辑工作簿（注意合规披露）。
Thank you for reading — if you want a downloadable model that applies these rules to a sample cap table and EV bridge (including convertible preferred scenarios), consider exploring Bitget’s research resources or reaching out to the analytics team to learn about available templates.
