# Liquidating value of preferred stock

The presence of preferred stock in the total stockholders equity, however, has a significant impact on the calculation.The formulas and examples for calculating book value per share with and without preferred stock are given below: The calculation of book value is very simple if company has issued only common stock.Market value typically provides the highest valuation of assets although the measure could be lower than book value if the value of the assets has decreased due to market demand rather than business use.The book value is the value of the asset as listed on the balance sheet.Book value per share of common stock is the amount of net assets that each share of common stock represents.Some stockholders have keen interest in knowing the book value of the shares they own. Mostly, the book value is calculated for common stock only.The liquidation value is the expected value of the asset once it has been liquidated or sold, presumably at a loss to historical cost.

Although you buy and sell preferred stock at the market price — which typically differs from book value — it’s a good idea to know its book value as a reference point, as shares that sell for steeply lower than book value might indicate financial trouble.

The balance sheet lists assets at the historical cost, so the value of assets may be higher or lower than market prices.

In an economic environment with rising prices, the book value of assets is lower than the market value.

The net assets i.e, total assets less total liabilities are divided by the number of shares of common stock outstanding for the period.

We know that: Net assets = Assets – Liabilities Equity = Assets – Liabilities Net assets = Equity So an alternative and equally acceptable approach is to replace the numerator of the formula by the stockholders’ equity.