I am working my way through security analysis by Benjamin Graham (sixth edition) and have come across some calculations that do not make sense to me. This is the paragraph that precedes the data that I do not understand:
In calculating the earnings coverage for preferred stocks with bonds preceding, it is absolutely essential that the bond interest and preferred dividend be taken together. The almost universal practice of stating the earnings on the preferred stock separately (in dollars per share) is exactly similar to, and as fallacious as, the prior-deductions method of computing the margin above interest charges on a junior bond.
1: What is meant in the text by the "prior-deductions" method
2: Why, when I calculate the earnings coverage for preferred dividends separately by taking earnings over preferred dividends
3,978,000/160,000, do I get 24.9 and not the 14.7 obtained by the "customary but incorrect statement" for the Colarado Fuel and Iron Company.