What Is Conversion Value?
The term conversion value refers to the financial worth of the securities obtained by exchanging a convertible security for its underlying assets. Convertibles are a category of financial instruments, such as convertible bonds and preferred shares, which can be exchanged for an underlying asset, such as common stock.
Conversion value is calculated by multiplying the common stock price by the conversion ratio.
Key Takeaways
- Conversion value is the amount an investor would received if a convertible security is changed into common stock.
- This value is arrived at by multiplying the conversion ratio (how many shares received per bond) by the market price of the common stock.
- Conversion value calculations are useful in determining break-even or floor values involved with holding convertible securities.
Understanding Conversion Value
As with types of investments such as stock options, a key objective with a convertible security is to hold onto it until the market price is higher than the conversion value, thus generating profit through the conversion and later sale of the common stock received.
The conversion value is closely related to the market conversion price or parity value, which are used to identify break-even values at a particular stock price. The conversion value, on the other hand, calculates what the net value would be to a conversion done right now at current market prices in the stock.
A convertible security that is trading at a price above its conversion value is said to have a conversion premium. This makes the security valuable and desirable. A convertible security is considered "busted" when it is trading at a price far below its conversion value. If the price of the underlying security falls too far below the conversion value, the convertible security is said to have reached its floor.
How Conversion Value Is Determined
Understanding what the floor value is for convertible bonds can help the bond holder determine when the underlying asset is worth converting. This includes knowing the face value for the bond. For instance, typically, when a convertible bond reaches maturity, the holder gets the face-valueprincipal payment that is equal to the amount they initially paid for the bond. The bond has also been generating interest over the course of the maturity period.
The floor value can be determined even before the bond reaches maturity through a calculation. Adding the principal payment to the interest payments, or bond yield, that have been received and are expected until it reaches maturity will result in the floor value. That is the figure that can be used for comparison against the conversion value to assess the worth of the securities.
In many examples, it is not profitable to exercise an option to convert, if allowed, before a convertible security matures. There may be stipulations that require the security to be held until it reaches a certain conversion price. It might be necessary for the issuers of convertible notes to bifurcate, or divide the fair value or price of a convertible bond between fair values for the conversion aspect and for the straight debt, which cannot be converted.
Example of Conversion Value
Suppose that investor owns convertible bonds in XYZ Corp., and decides to utilize the call option in order to convert those bonds into common shares of the company.
Assuming that the bond’s conversion ratio is 50 shares per bond, and the bond shares of XYZ stock are trading at $20, then the conversion value of one bond would be $1,000 (i.e. 50 x $20)
FAQs
For example, if a bond can convert into 30 stocks, it has a conversion ratio of 30. Now that you have that conversion ratio, you can multiply it by the stock's current share price. That number you get is the conversion value.
How to determine conversion value? ›
Conversion value is the amount an investor would received if a convertible security is changed into common stock. This value is arrived at by multiplying the conversion ratio (how many shares received per bond) by the market price of the common stock.
What is a good conversion value for Google Ads? ›
Most of our survey participants report a 3.1-6% conversion rate for search ads. For display ads, the conversion rate is between 0 and 1%. The average conversion rate across all industries for search ads is 4.2%, while for display ads, it's 0.55%.
What is the meaning of all conversion value? ›
It's calculated by dividing “Conversions” by the total eligible interactions (like ad clicks or video ad views.) Total conversion value (“Total conv. value”) is the sum of conversion values for your “Conversions.” You have to enter a value for your conversion actions to make this metric useful.
What is conversion and examples? ›
Conversion is a type of word formation process in which a word is assigned to a new word class or part of speech without any change in form. An example of conversion is an email (noun) changing to a verb; to email.
How does conversion work? ›
A conversion factor is a number used to change one set of units to another, by multiplying or dividing. When a conversion is necessary, the appropriate conversion factor to an equal value must be used. For example, to convert inches to feet, the appropriate conversion value is 12 inches equal 1 foot.
How do you calculate conversion examples? ›
Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad interactions that can be tracked to a conversion during the same time period. For example, if you had 50 conversions from 1,000 interactions, your conversion rate would be 5%, since 50 ÷ 1,000 = 5%.
What are conversion value rules? ›
Conversion value rules let you better express the value of conversions as they relate to your business, and easily adjust values for conversions based on geographic location, device and audiences at auction time bidding in real time.
Why is conversion value important? ›
Conversion values help you measure and optimize the true business impact of your ad campaigns more accurately. If you assign values to your conversions, you'll be able to learn the total business value that Google Ads generated, rather than simply the number of conversions that have happened.
What is the formula for calculating conversion value? ›
To calculate conversion value, multiply the average order value with the conversion rate. This will give you the monetary value generated from each successful conversion on your website.
Set conversion values
- In your Google Ads account, click the Goals icon. .
- Click the Conversions drop down in the section menu.
- Click Summary.
- Click the name of the conversion action you'd like to change.
- In the "Details" tab, click Edit settings on the bottom right.
- Click Value. ...
- Click Save.
- Click Done.
Calculating your conversion rate
All you have to do is take the number of people who interact with a particular piece of content, like an email or a page on your website, and divide the number of conversions by that total. The total you divide by depends on the type of content you want to find the conversion rate for.
What is average conversion value? ›
Conventional wisdom says that a good conversion rate is somewhere around 2% to 5%. If you're sitting at 2%, an improvement to 4% seems like a massive jump. You doubled your conversion rate! Well, congratulations, but you're still stuck in the average performance bucket.
What is a conversion formula? ›
The conversion rate is calculated by dividing the number of conversions by the total number of visitors. For example, if an eCommerce business received 1,000 site visitors in one month and received 50 customer orders, then the conversion would be 5.0% for the month.
What is conversion in simple terms? ›
Conversion is the act or process of changing something into a different state or form.
What is an example of a conversion statement? ›
For instance, consider some cases of conversion: “No birds are bumblebees.” CONVERSION→ “No bumblebees are birds.” • “Some birds are flying creatures.” CONVERSION→ “Some flying creatures are birds.”
Which one is the example of conversion? ›
Examples of conversion in a Sentence
The company is undergoing a conversion to a new computer system. They have suggested conversion of the old school into apartments. Conversion to gas heating will continue over the next few years. a conversion from Catholicism to Judaism He is thinking about conversion to Buddhism.
What is an example of conversion price? ›
The conversion price of the convertible security is the price of the bond divided by the conversion ratio. If the bonds par value is $1000, the conversion price is calculated by dividing $1000 by 5, or $200. If the conversion ratio is 10, the conversion price drops to $100.
What is an example of an exchange value? ›
Exchange value is represented as the ability of definite quantitative proportion of a commodity to be represented in the value of a quantitative proportion of another commodity. For example one kg of tea can be represented in the value of 4 kg of rice.
