Great question! The reason is that a hypothetical investor (someone interesting in buying common shares) would want to know the amount that they and the other common shareholders would receive if the company (1) sold all its tangible assets for their book values and (2) used the proceeds to pay off its debt, give preferred shareholders their money back, and distribute the remaining amount to the common shareholders. This comes back to the pecking order when a company is liquidated: creditors must be paid first, then preferred shareholders, and finally common shareholders. Thus, a hypothetical investor would want to exclude preferred equity when thinking of book value because common shareholders aren't going to receive that amount if the company is liquidated (that portion would go to preferred shareholders). I hope this helps!

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