Enter the total equity ($) and the preferred rate (%) into the Calculator. The calculator will evaluate the Preferred Return. 

Preferred Return Formula

PR = E * PFR/100

Variables:

  • PR is the Preferred Return ($)
  • E is the total equity ($)
  • PFR is the preferred rate (%)

To calculate the Preferred Return, multiply the total equity by the preferred rate.

How to Calculate Preferred Return?

The following steps outline how to calculate the Preferred Return.


  1. First, determine the total equity ($). 
  2. Next, determine the preferred rate (%). 
  3. Next, gather the formula from above = PR = E * PFR/100.
  4. Finally, calculate the Preferred Return.
  5. After inserting the variables and calculating the result, check your answer with the calculator above.

Example Problem : 

Use the following variables as an example problem to test your knowledge.

total equity ($) = 100,000

preferred rate (%) = 5

Frequently Asked Questions

What is Total Equity?

Total equity refers to the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off. It’s an important financial metric used in the calculation of preferred returns.

Why is the Preferred Rate Important?

The preferred rate is crucial because it determines the return rate investors can expect on their preferred shares. This rate often influences investment decisions and the attractiveness of preferred shares in the market.

How Do Preferred Returns Differ from Common Stock Dividends?

Preferred returns typically offer a fixed dividend rate and have priority over common stock dividends, meaning they are paid out first. In contrast, common stock dividends are not guaranteed and can fluctuate based on the company’s performance and dividend policy.

Can the Preferred Rate Change Over Time?

While the preferred rate is generally fixed at the time of issuance, certain conditions outlined in the share’s prospectus, such as a company’s financial performance or changes in interest rates, can lead to adjustments in the preferred rate.