Preferred stock
In one sentenceShares that give their holder priority over common shares in distributed profits, on liquidation, or both, with rights set out in the company's bylaws and terms of issue.
Simply put
It often carries a dividend at a set rate paid before common shareholders, and in return for this priority it may not have voting rights.
It is presented within equity or liabilities depending on its terms: a preferred share that must be redeemed on a set date may be classified as a liability under international standards.
Worked example
A company issued 10,000 preferred shares at 100 SAR per share, with a priority dividend of 6% a year of their value, and decided to distribute total dividends of 200,000 SAR.
Value of the preferred shares10,000 × 100 = 1,000,000 SAR
Preferred dividend first1,000,000 × 6% = 60,000 SAR
Remaining for common shares = 200,000 − 60,000140,000 SAR
Don't confuse it with
Common stockIt receives what remains after preferred shares and usually carries voting rights.