Definition of Preferred Stock Ratio

Preferred Stock Ratio is a ratio detailing the amount of an issuer’s total capitalization that is made up of preferred stock. The ratio is found by dividing the total par value of preferred stock by the issuer’s total capitalization.

Applying "Preferred Stock Ratio" to Securities Exams:

Certain fundamental investors will want to analyze a company by reviewing its capital structure to determine how highly leveraged the company is. The more highly leveraged the company is the greater the percentage of its capital it has borrowed. The more highly leveraged the company is the greater the risk to investors. Preferred stock carries a stated dividend rate that requires the company to make semi annual dividend payment to the preferred holders. These stated or required payments create a current and future liability to the company.

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