1. What is Conversion Ratio?

The Conversion Ratio is a financial metric used for convertible securities that determines how many shares of common stock a convertible bond or preferred share can be converted into. It represents the number of shares received per convertible security.

2. How Does the Calculator Work?

The calculator uses the Conversion Ratio formula:

Where:

• \( \text{Par Value} \) — Face value of the convertible security (currency)
• \( \text{Conversion Price} \) — Price per share at which conversion occurs (currency/share)
• \( \text{Conversion Ratio} \) — Number of shares received per bond (shares per bond)

Explanation: The formula calculates how many shares an investor would receive if they converted their convertible security into common stock at the specified conversion price.

3. Importance of Conversion Ratio

Details: The conversion ratio is crucial for investors in convertible securities as it determines the potential equity upside. It helps assess whether conversion would be profitable based on current stock prices and influences the convertible security's valuation.

4. Using the Calculator

Tips: Enter the par value of the convertible security in currency units and the conversion price in currency per share. Both values must be positive numbers greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between conversion ratio and conversion price?
A: Conversion price is the price per share at which conversion occurs, while conversion ratio is the number of shares received per convertible security. They are inversely related through the par value.

Q2: Can the conversion ratio change over time?
A: Yes, conversion ratios may adjust for stock splits, dividends, or other corporate actions as specified in the convertible security's terms.

Q3: What is a typical conversion ratio range?
A: Conversion ratios vary widely but typically range from 10 to 100 shares per bond, depending on the security's par value and conversion price.

Q4: How does conversion ratio affect investment decisions?
A: A higher conversion ratio means more shares per bond, potentially making conversion more attractive if the stock price rises significantly above the conversion price.

Q5: Is conversion ratio the same for all convertible securities?
A: No, each convertible security has its own specific conversion ratio determined by the issuing company based on market conditions and financing needs.