Residual Security

AAA

DEFINITION of 'Residual Security'

A convertible security which may increase the number of current outstanding common shares. A residual security, which is converted or exercised, results in more shares being issued, causing dilution. Corporations may offer residual securities to attract investment capital when competition for funds is highly competitive.

INVESTOPEDIA EXPLAINS 'Residual Security'

If the residual securities are converted or exercised it will affect financial analysis metrics, such as earnings per share, because the new calculation would require dividing a company's earnings by a greater number of shares. A convertible bond, for example, would be a residual security because it allows the bond holder to convert the security into common shares. Preferred stock may also have a convertible feature.

RELATED TERMS
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Convertible Debenture

    A type of loan issued by a company that can be converted into ...
  3. Diluted Earnings Per Share - Diluted ...

    A performance metric used to gauge the quality of a company's ...
  4. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  5. Anti-Dilution Provision

    A provision in an option or a convertible security. It protects ...
  6. Dilution

    A reduction in the ownership percentage of a share of stock caused ...
RELATED FAQS
  1. What measures can be used to evaluate the capital adequacy of a bank?

    The most commonly used assessment of a bank's capital adequacy is the capital adequacy ratio. However, many analysts and ... Read Full Answer >>
  2. What dividend yield is typical for companies in the industrial sector?

    The average dividend yield of the industrial goods sector is approximately 1.71%. The industrial goods sector is a group ... Read Full Answer >>
  3. What is price-to-book ratio is typical in the electronics sector?

    In fundamental analysis, book value is an important concept for measuring a business's value. Book value equals total assets ... Read Full Answer >>
  4. What price-to-earnings ratio is average in the real estate sector?

    The price-to-earnings (P/E) ratio is a commonly cited valuation metric that can help investors decide what stock price is ... Read Full Answer >>
  5. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
  6. As an investor in stock, how should I evaluate a company's capital employed?

    Before you evaluate a company's capital employed, you first need to nail down a consistent, working definition of capital ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Online Gaming Industry Stocks

    A look at some of the top stocks in the online gaming industry.
  2. Stock Analysis

    Invest In Cyber Security With These Stocks

    Learn about some amazing cyber security plays in this hot sector.
  3. Fundamental Analysis

    Tesla Home Batteries Could Transform Your Electric Bill

    With limited daylight hours, solar power cannot power our homes at night, but Tesla Motors might help solve that problem.
  4. Fundamental Analysis

    Understanding Lululemon's Business Model

    Lululemon has succeeded in marketing more than just fitness apparel. The company has strategies for continued growth, but it faces tough competition.
  5. Home & Auto

    Buying a Home? The Best Places Share This Feature

    The most lucrative areas to invest in a home are cities where job growth is robust.
  6. Technical Indicators

    6 Stocks for Millennials (or Anyone)

    Savvy Millennial investors looking for long-term winners should take a look at these stocks.
  7. Personal Finance

    Top Healthcare, Medical Equipment Stocks of 2015

    A short list of the top healthcare and medical equipment stocks of 2015.
  8. Investing

    What A Rate Hike May Mean For Stocks

    By the end of the year, investors will likely be contending with the first Federal Reserve (Fed) rate hike in nearly a decade.
  9. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  10. Technical Indicators

    Will These High-Flying Stocks Stay Hot in 2015?

    These 10 stocks were on fire in 2014. Will they stay hot?

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center