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Do convertible preferred shares increase common equity (increase the ratio of common equity to preferred equity) when converted? For example there $4m in shareholders equity and there are 4 shares, 2 of which are preferred. Thus common equity maybe $2m and preferred equity also $2m. Now, if one of the preferred shares were to be converted, would that increase the common equity to $3m? Or would the $2m in common equity now be shares among 3 shares and preferred equity stay $2m? (therefore allowing the ratio of common equity to preferred equity to remain the same).

The reason I'm confused by this is because when calculating BVPS (book value per share - which is basically finding out how much shareholder's equity there is per share) some articles (eg: BVPS Definition) mention that the common equity should be divided by diluted common shares outstanding, but if you were to use the diluted common shares outstanding wouldn't the equity available to common shareholders also increase? (meaning that we'd need to use the equity available to common shares and convertibles and not just common shares)

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Converting to shares has the same effect as a secondary offering. It dilutes ownership of existing shareholders, decreasing their percentage of ownership when the new shares hit the market.

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    but would this change the ratio of common equity to preferred equity?
    – piny88
    Aug 5 at 21:32

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