Definition:

Shares per Depository Receipt refers to the number of underlying shares that are represented by a single depository receipt. Depository receipts are financial instruments used to trade shares of a foreign company on a domestic stock exchange.

Formula:

Shares per Depository Receipt = Total Number of Underlying Shares / Total Number of Depository Receipts

How to use the metric:

This metric is used by investors to understand the proportion of actual shares they own when they purchase a depository receipt. It helps in assessing the value and potential dividends of the investment, as well as in making comparisons with direct investments in the underlying shares.

Limitations:

The metric does not account for currency exchange risks, differences in market regulations, or potential fees associated with depository receipts. It also does not reflect the liquidity or market conditions of the underlying shares.

Applies to:

This metric is particularly relevant in industries with significant international operations, such as technology, pharmaceuticals, and manufacturing, where companies often list their shares on foreign exchanges through depository receipts.

Doesn't apply to:

Industries that primarily operate domestically and do not engage in cross-border listings, such as local utilities or small-cap companies, may not find this metric applicable as they are less likely to use depository receipts.

Summary:

Shares per Depository Receipt is a useful metric for investors dealing with international investments through depository receipts. It provides insight into the ownership structure and helps in evaluating the investment's value. However, investors should be aware of its limitations and consider other factors such as market conditions and currency risks.