24. Calculate Book Value with Preferred Stock Video Lecture | Become an Expert: Value Investing - Business Basics

well in the course to Unit four lesson
three book value with preferred stock in
this lesson we have two lesson
objectives
the first lesson objective is how to
account for preferred stock on a balance
sheet and what is a 10-q so let's get
started when we were going through the
two previous lessons you were probably
wondering how we could account for
common stock and preferred stock being
on the same balance sheet and in some
lessons that we did in the first course
where we calculated the book value of a
company we were always doing that
whenever there was just common stock for
that company but whenever you have
preferred stock and common stock if you
remember the preferred shareholders
actually owns some equity in the company
and so when a company has preferred
stock in common stock we have to account
for that whenever we're figuring out the
book value if we're gonna buy common
shares versus preferred shares so that's
something that you really got to know if
you're gonna be buying common stock and
so that's what this lesson is gonna
teach you to do is to account for that
difference between those two whenever a
company has preferred and common stock
issued so in order to demonstrate this
let's go ahead and continue working with
the company that we used in the last
lesson which was the stock ticker SPG so
if we go here to MSN Money and we type
in SPG we're gonna go ahead and pull up
this is the common shares for Simon
Property Group if you remember before we
were looking at the preferred stock for
the Simon Property Group so we came to
the common stock and we're gonna look at
the common stock ticker okay and the
first thing that I'm gonna do is I want
to go look at the balance sheet because
that's where we're gonna be able to
decipher the common versus the preferred
shares so what we're gonna do is we're
gonna go ahead and go to the balance
sheet right here okay and when we click
on the balance sheet it brings this up
and we're looking at the interim balance
sheet for the first quarter of 2012 for
the Simon Property Group okay so as we
come down we can see that the balance
sheet is broken down into the assets and
then it's also broken down into the
liabilities right here and then the
difference between the assets and the
liabilities
is our total equity which that number is
right here okay so before when we want
to figure out the book value of a
company all we did is we took the total
equity of the company and then we
divided it by the total common shares
and that gave us our book value as you
look here on this balance sheet if
that's how we were gonna do it and let's
just assume that this company had no
preferred stock it just had common stock
what we do is we take that 6,000 and we
I'm gonna go ahead and do my math over
here in Excel so what we're gonna do is
want to take that six thousand six zero
seven seven point nine one and we're
gonna divide that by the total common
stock which is the three oh three point
one okay so we go three oh three point
one and we hit enter okay and you can
see our result came to be twenty dollars
and five cents so a lot of people who
might not have a lot of depth in this
field where you're calculating the book
value of a company might come in here
and quickly figure out the book value be
twenty dollars and five cents but that
would be wrong because when you look at
this balance sheet you can see that we
have the common shares outstanding
listed at 303 point one and then you
have the total preferred shares
outstanding listed as 0.8 okay so that
point eight is not being accounted for
right there and so that book value of
twenty dollars and five cents is wrong
okay
now let me show you something why you've
got to be careful whenever you're using
the numbers that MSN or any one of these
Google or Yahoo or whatever when they're
telling you ratios and they're telling
you numbers you got to be real careful
if you're not the one who's actually
doing the math from the balance sheet or
the income statement or whatever the
case might be so I'm gonna show you what
MSN is showing the book value for this
assignment Property Group has and just
just so you know the Simon Property
Group isn't a stock that I'm
recommending by all means it's just a
stock that we're using because it has
preferred such errors so when we go here
to the financial highlights let's go
ahead and click on that and as you can
see right over here the book
you is listed as $20.05 which is exactly
what we just calculated so the
calculation that's being done here is
wrong okay and so if you were just gonna
look at that quickly and not actually go
into the balance sheet and do the math
you would be misled as to what the book
value of this company actually is so
let's go ahead and figure out what the
book value really is for this company so
in order to do that we're gonna have to
pull up what's called the 10-q okay and
that's the quarterly report that the
Simon Property Group would have to file
with the federal government in order to
do their taxes so let's pull that up and
what you do is you go in here you see
where it says SEC filings okay we're
gonna go ahead and click that and it
pulls up all the documents that the
Simon Property Group has filed has the
date received right here okay and what
we're looking for is the ten queue
because that's the quarterly report
where they're gonna that balance sheet
that we looked at earlier that's where
that all those numbers are actually
coming from this document that we're
going to be pulling up this would be the
raw information and that's the
interpolated information that MSN has
pulled from the report to make it easy
for you to view okay so when we go into
that 10-q report it's go ahead and pull
that up you can see that it's the formal
report that they had the file on
whatever day and all the all this
information if you're investing in
individual shares and you're investing a
lot of money in individual shares you're
gonna want to become very familiar with
the 10-q report because you're going to
want to go in here and read all the fine
print which is where you get the best
information isn't the fine print and
you're going to want to pick apart all
these all this data that they're giving
you and all the information that they're
giving you okay so you can see the very
first thing that they have on this
report you can see that they have their
a balance sheet is the very first thing
we got here so you got the assets listed
you got their total assets right there
their liabilities and then they have the
equity listed okay now when we dig into
the equity here this is where we're
gonna see what they're valuing their
preferred stock at and you can see right
here it's and these numbers are in
thousands okay so that's for forty four
point nine million okay that's what the
preferred stock is listed
okay and we had to come into this report
to find that okay in order to show you
the difference between the SEC filing
report and also the in the balance sheet
that we were looking at earlier I have
both of them pulled up side by side so
you can see the SEC filing on the right
and then the information that MSN had
pulled onto the balance sheet on the
Left okay
so whenever we have this information
side by side we can see that the total
equity listed right here is this six
billion dollars okay and now that's six
billion dollars is the same six billion
dollars that we see over here listed
right there for the total stockholders
equity so that's where those two numbers
marry up okay so let me show you where
the preferred stock is listed at
now the par value for the preferred
stock is listed right here that 44 965
now when we look over on the balance
sheet for the MSN version you can see
it's this forty four ninety seven okay
so we want to know how much of the
common shareholders equity is right here
we have to subtract that forty four
ninety seven out of that figure okay so
that's this number right here they show
you exactly this could that preferred
stock we were looking at in the previous
lesson how they had one million shares
initially offered this is what they're
down to right now and then the
liquidation value and this is what
they're currently listing it at okay so
that's the number we have to use in
order to subtract that from our equity
so let's go ahead and go back to our
calculator here okay and we're going to
go ahead and subtract that equity out so
the total equity is six zero seven seven
point nine one okay and I got to put an
equal sign in front there and order for
it to do the math okay so we got that
number in and then we're gonna subtract
the forty four point nine seven because
that's the preferred stocks value okay
and when we do that we get six billion
32 for the total equity okay so once we
had that number all we're going to do is
then divided by the total common shares
so we got the six billion we're going to
divide that I'm gonna get equals
if this number subtracted but I'm sorry
/ r30 3.1 okay when we hit enter
that gives us $19.90 okay so that's the
bottom line figure that number right
there is the number that we're looking
at for the book value on the common
shares of this company so that's that's
what you really got to pay attention to
if you are gonna be assessing the equity
growth of this business for the last ten
years to see how much that equities
grown which you'll you you know from
doing the intrinsic value calculation
that's really important to know you
would have to go back and do this for
each year to make sure that you're
measuring that equity growth properly
some people might not want to do that
and they might want to avoid buying
common shares of a company that also has
preferred stock out on it just for that
reason alone because you might not want
to do the math but that's something you
have to consider because even though
that's about a 15 cent difference over
time that could that could really have a
lasting impact on what you're actually
estimating that equity growing at so I
find this really important to do I think
it's it's really important to understand
how all this works more so than maybe
adjusting the value for five cents but
understanding the fundamentals and how
all this stuff works is what's really
important and so hopefully I giving you
some tools here to use and some more
information on the balance sheet and how
it all fits together and that's how you
can look at the common shares and the
preferred shares together and still
understand how much of that is yours
depending on which type of asset you
have so in this lesson we covered how to
account for preferred stock on a balance
sheet and we also showed you what the
10-q report was and I hope that you guys
learned some important information there
and I'll see you guys in the next lesson