Conversion Ratio (Preferred Stock)
Private Equity glossary · Valuation, Diligence, & Value Creation
Definition
The number of common shares received upon conversion of one preferred share; adjusted by anti-dilution provisions.
Conversion Ratio (Preferred Stock) in plain English
Some investors don't buy regular "common" stock — they buy "preferred" shares, which come with a special escape hatch: the right to swap each preferred share into a set number of common shares later, usually when the company is doing well. The conversion ratio is simply that swap rate — how many common shares you get for one preferred share. Think of it like a coupon that says "redeemable for 4 movie tickets": the ratio is 4-to-1. "Anti-dilution provisions" are fine-print protections that bump up the ratio if the company later sells new shares cheaply, so the early investor's stake isn't quietly shrunk.
Also called: Preferred Stock
Practice Conversion Ratio (Preferred Stock)
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