Preferred Shares are listed as a balance sheet liability but I'm not certain how the $ value is arrived at. Is the amount listed on a quarterly balance sheet the $ amount of dividends paid out to preferred shareholders? What about the actual market value of the shares themselves-- is this somehow included (or excluded) in the overall market cap?

Also, with rising interest rates I'm thinking of giving slightly more preference to companies that have higher amounts of Cash since they won't need to take loans at these higher interest rates, AND also companies that have more Long Term Debt (without being too excessive) since they will have locked-in these debts at a lower interest rate than those of their Short Term Debt.

Thanks in advance!

 

Without seeing the balance sheets themselves I can't answer your question about the preferred shares. Some companies pay only dividends on preferred share and none on common shares, some pay dividends on both, it depends on the company.

Your thoughts on investing with companies that have large stores of cash may be oversimplified. Post 9/11 Northwest had by far the most cash in hand but is now in bankruptcy where many airlines that had less cash are not. You can have lots of cash but if you are not profitable or less profitable than a company that has less cash, your stock might preform worse.

Say if company A has less cash on their balance sheet because they just aquired a really profitable small company that is really adding to profits, and company B has lots of cash but a struggling business, the stock of company A will most likely do better.

If all other things are equal, sure, your theory may prove true, but it is hard to measure companies in different sectors against each other because they all face different market strategies and competition. (pharmacuetical firm with lots of cash vs. defense contractor with lots of cash)

 

You don't want a company with lots of idle cash. Think about it, if its profitable with lots of cash, then it isn't doing a good job of growing and reinvesting the money. If its losing money...well...you don't want it anyway.

I think your strategy is very oversimplified. An optimal financial mix for one industry is not the same as the mix for another.


Preferred shares should be a component of shareholders equity (on the liabilities side of the BS). It should be the face value of the preferred stock held. Look closer at the statement of cash flows, as well as the income statement. They'll give you a more complete picture of the financial condition of the company. Also read all the notes to the financial statements, there's lots of great information buried back there. Good luck!