The question this worksheet answers
How do preferred and common distributions relate to the earnings measure selected for one matching period? The first step is attribution, not a claim that accounting earnings are cash available to distribute. A measure stated before preferred distributions needs a preferred deduction to describe the common-attributed amount in this simplified bridge. A measure already attributable to common holders must not have the same deduction taken again. The input basis therefore changes the arithmetic visibly.
Formula and synthetic worked example
The synthetic fixture uses period earnings of 120, preferred distributions of 10 and common distributions of 90, all USD million for the same period. On a before-preferred basis, common-attributed earnings are 120 − 10 = 110. Total distributions are 10 + 90 = 100. Common-attributed earnings less common distributions are 110 − 90 = 20. If the starting 120 is already common-attributed, it stays 120 and the last difference is 30. The tool does not subtract preferred distributions twice to create 100.
How to use: find the basis before entering numbers
Read the income statement attribution, preferred equity note, distribution announcements and the reconciliation for any supplemental measure. A company may show net income attributable to the parent, net income available to common shareholders or a company-specific adjusted amount. Those labels are not interchangeable. Select one measure, preserve its definition and use the same period and currency throughout. Preferred declarations and common declarations must share a declared basis, or both must be paid amounts with their payment timing limitations understood.
Assumptions and limitations: what belongs outside this bridge
A preferred security may have cumulative distributions, redemption terms, conversion features or restrictions that are not visible in a one-period distribution amount. This worksheet does not build a contractual liquidation waterfall, value the preferred shares or predict recovery on a common claim. It does not infer arrears from one quarter without a distribution, and it does not include debt principal or enterprise value. Those omissions keep an earnings-attribution exercise separate from a legal priority or asset-valuation analysis.
Missing information stays missing
Leave an undisclosed distribution blank to mark it unknown. An explicit zero means the user has deliberately entered zero, not that the tool searched and found none. Unknown preferred distributions prevent an unadjusted starting measure from being attributed fully to common holders. An already-common measure can remain usable when preferred distributions are unknown, although total distributions remain unavailable. Negative earnings and negative residuals are preserved as arithmetic; they are not converted into investment ratings or a predicted payment decision.
Questions readers ask
Can net income cover a distribution while cash declines? Yes: accounting results and cash movements differ. Can a preferred distribution be deducted from an earnings figure already available to common? That would double count the attribution and is prevented by the selected basis. Does the difference after common distributions prove a dividend is sustainable? No: financing, capital spending, taxes and working capital are not modeled. If the source uses an adjusted measure, preserve the issuer reconciliation and inspect its exclusions before interpreting the bridge.
Primary sources, scope and corrections
These sources explain filing structure and security claims; they are not sources for the synthetic numbers above. DFB wrote the example and formulas for education. No issuer dataset or current market data is loaded.
- SEC: How to Read a 10-K — financial statements, notes and liquidity discussion
- Investor.gov: Stocks — common and preferred shareholder claims
Related reading: JV ownership and valuation · Debt maturity analysis · Refinancing modeling · Distribution denominators.
Educational scenarios, not forecasts or personalized investment advice. Editorial standards · Report an error with its page and source. Formula version capital-1.0.3. No rating or safety threshold is assigned.