DEFINITION of 'Swap Ratio'
The ratio in which an acquiring company will offer its own shares in exchange for the target company's shares during a merger or acquisition. To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share, profits after tax and dividends paid, as well as other factors, such as the reasons for the merger or acquisition.
BREAKING DOWN 'Swap Ratio'
For example, if a company offers a swap ratio of 1:1.5, it will provide one share of its own company for every 1.5 shares of the company being acquired.
This can also be applied as a debt/equity swap, when a company wants investors to trade their bonds with the company being acquired for the acquiring company's own shares.