Conversion Ratio

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Description of Conversion Ratio. Explanation.

Definition Conversion Ratio. Description.

The Conversion Ratio is an investing term that reflects the number of shares of common stock that a security holder will receive from exercising the call option of a convertible bond or a convertible preferred stock. It is the number of shares of common stock that could be obtained by converting each share of a convertible security.

The ratio can be calculated by the following formula:

Conversion Ratio = (Par Value of Convertible Security)  /  (Conversion Price of the Common Security)

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Compare with: Convertible Preferred Stock  |  Convertible Bond  |  Conversion Price

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