Conversion Ratio

The conversion ratio is the number of common shares shareholders may receive for every convertible preferred share.

For example:

Convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date. Let's assume you purchase 100 shares of Company XYZ convertible preferred stock on June 1, 2006. According to the registration statement, each share of preferred stock is convertible after January 1, 2007, (the conversion date) to three shares of Company XYZ common stock. The number of common shares given for each preferred share is the conversion ratio. In this example, the ratio would be 1 to 3.