Restricted Stock

Restricted Stock is is also known as Restricted Securities or Letter Stock. In simple terms it can be said as owning a share in a company with some restrictions laid on it. Restricted Stock  never allow full transference until certain condition have been met. Only when the conditions are satisfied, the person holding the award allow full transference. Some company provide guarantee for this stock in form of compensation form. During vesting period the condition guaranteed for Restriction Stock help them in transferring the shares periodically. Another type of restriction is based on condition of performance such as financial targets or company reaching earnings per share goal.

Valuation Of Restricted Stock

Let us move on to certain factors influencing the value of Restricted Stock. In valuating the Restricted Stock the first and foremost factor that comes into one's mind is nature of the Restriction Stock and length of it. Secondly transferability of the Letter Stock Should be taken into account. Next factor influencing the valuation of the Restriction Securities is the underlying financial strength of the company. Fourthly one must be conscious of the rights of the Letter stock such as liquidation damage and registration rights. Fifth factor to be considered in valuating the Restricted Stock is the ability to borrow shares of the company as it is mostly essential for the purpose of hedging. Finally the availability of publicly traded option contract on the issued stocks should be considered as they influence the value of Restriction Stock.

In comparison with Stock Option, it motivate employees and it becomes more prominent among employees particularly for executives.

Difference Between Common Stock and Preferred Stock

In general Common and Preferred stock own a share in a company and therefore the investors can claim on the company's asset and earnings. Both investors get profit when company run successfully and regarding the way of trading, no distinct difference are found as they trade in the same way using brokerage firm and transaction cost too shows no difference.

But there are more notable difference between these two types of stock which are summarized as below.

As far as Common Stock are concerned, the investors has rights to vote the Board of Directors who are in charge of making decision. But preferred stock holder are denied of voting privileges. For Preferred Stock dividend is fixed forever whereas in case of Common Stock dividend depends on the decision of the Board of Directors. Price vary for Common Stock and Preferred Stock even though it is issued by the same company. Preferred Stock is a stable one as income is regular whereas Common Stock is volatile. Preferred Stock stuck to tax liability as the value is of higher but common stock have no tax issue.

Regarding claiming on company's asset and earnings Preferred Stock holds a higher rank. In case of favorable condition were the company growth flourishes money are distributed to the preferred stock holders in form of dividend. In case of company's bankruptcy and liquidation preferred stock holder get the payment first, Common stock holder get the payment only after the preferred stock holder, creditors and bond holder get the payment. Mostly in case of Preferred Stock the price are based on the interest rate. If the interest rate are higher then the stock price goes down and if low then the price of stock hike.

If investors anticipation is to gain a profit through hike in stock price or capital growth and dividend, then investors can go on with Common Stock. In case if investors are more likely to get incessant flow of cash in dividend form, then they can switch on to Preferred Stock. In other word Preferred Stock is similar to "Fixed -Income Security".

Types Of Stocks

Generally stocks are defined as owning a share in the company and representing a claim on the company's asset and earnings. There are two types of stock market namely common and preferred stock. 

Common Stock

As per the name indicates it is well common in comparison with Preferred stock. Common Stock carries voting right which has been practiced in corporate decision. If you have a common shares you can claim on a portion of profits. By owning a share you get one vote right per stock share and board member can be of your choice as you have rights to vote them. Regarding management board members oversees the major decision.

As far as Common Stocks are concerned, it has been revealed through study of investing and stock market that highest returns are possible when capital growth are at maximum. But Common Stock carries highest risk in the event of company's bankruptcy and liquidation. The share holder never get the amount unless tamount are paid to the creditors, bondholders and preferred stock holders.

Preferred Stock

Preferred Stock is legally entitled to receive a dividend payment to certain level. A fixed dividend is guaranteed forever. So in case of company's bankruptcy and liquidation preferred stock holder can be free of worries as they will be paid off. The stock holder has an option to convert Preferred Stock to a fixed number of common share at anytime even after a predetermined date. This type is known as convertible Preferred Share. Another option available for preferred share holder is that the company can get the shares from the share holder at anytime. As Preferred Stocks are callable the claim of share holder on the company's asset and earnings are greater. If the company's profits are higher then preferred stock holder get benefits.