The fair value of a company’s total debt is the current amount the company would need to pay to retire the debt and settle the claims of the creditors. This fair value of debt is subtracted from shareholder value because the firm would need to settle these claims before it could return any cash to shareholders.
Preferred stock is a hybrid instrument that carries no voting rights but has a senior claim on assets and cash flows to common stock. Dividends usually must be paid out to preferred stock owners before common stock owners can receive any money. In the event of liquidation, preferred shareholders also have priority.
Without careful footnotes research, investors would never know the amount of employee stock options that decrease the amount of future cash flow available to shareholders by diluting the value of existing shares.
When McDonalds (MCD) made my Most Attractive Stocks list this month, I must admit I let out a small cheer. This company is one of the better-run businesses in the world. I have long eyed the stock in hopes that it would get cheap enough to dig into and now it has.
The difference between the stock price and Economic Book Value (EBV) of s stock measures the difference between the market’s expectation for future profits and the no-growth value of the stock.