Preference shares are those shares which have the prior right on the dividend and refund of capital in case of liquidation of company. Like debentures, preference shares have the following features:
Face Value Or Par Value: The value or price stated on the share certificate is called face value. The dividend is computed on the basis of face value. The share's market price may be different from the face value depending upon the financial condition of the issuing company.
Dividend Rate: The rate of dividend payable on preference share is predetermined. On the basis of such dividend rate and face value of share, the amount of dividend is determined as below:
Dividend per share (DPS) = Face value X Dividend rate
Total Dividend = Face value X Dividend rate X No. of preference share.
Maturity Period: Maturity period is mentioned on the preference shares if such shares are redeemable after some years in future. Generally, maturity period is not mentioned on the preference share and such shares are called irredeemable.
Net Proceed: The amount received by the company issuing the preference hares after deducting all issuing expenses is called net proceed. Net proceed is computed on the basis of face value of the share, discount on premium and issuing cost or flotation cost.
