What is a Common Stock Equivalent?
A common stock equivalent is another financial instrument that has the potential to be converted into common stock. There are several different types of instruments that possess this potential. However, the conversion of a common stock equivalent is not always desirable for the holder of the instrument or other investors. Preferred stocks sometimes carry the possibility of conversion into common stock. This is usually the case when the company in question has issued both preferred stock and common stock. The terms and conditions that control the issue of preferred stock will specify if the stock can rightly be considered a common stock equivalent. It is important to note that not all forms of preferred stock are automatically eligible for conversion, even if the company does also issue common stock. Another example of a common stock equivalent is the preferred bond. Once again, it is important to note that the terms and conditions connected with preferred bonds will vary from one situa
