Preferred Shares Valuation

Preferred Shares Valuation

Valuing preferred shares differs from valuing ordinary shares due to their features, such as the payment of preferred dividends, the rights to convert the preferred shares into ordinary shares at (favourable) prices and the preferred rights to receive repayment upon liquidation events (“liquidation preference”). In addition, different classes of preferred shares and/or other convertible securities with varying rights may exist. All these features, alone or together, render valuations of preferred shares much more complicated. 

This article will explain the widely-known practice for valuing preferred shares - Option-Pricing Method, and its considerations for adoption. 

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