An analyst should treat preferred stock on a firm's balance sheet as debt when calculating leverage ratios if the preferred stock is convertible into common stock.

Question

Quizplus · Accepted Answer

Preferred stock, even if convertible into common stock, is considered equity on a firm's balance sheet, not debt. Leverage ratios typically focus on the relationship between debt and equity, not between different forms of equity.

An Analyst Should Treat Preferred Stock on a Firm's Balance