ADR and ADR ratio
A US-listed certificate that represents shares of a foreign company; the ADR ratio sets how many ADRs equal one ordinary share.
An American depositary receipt (ADR) is issued by a US depositary bank and trades on a US exchange in dollars. Each ADR is backed by a set number of ordinary shares held in custody abroad. The ADR ratio defines that number. A ratio of 1 ADR to 5 shares means each ADR represents five ordinary shares.
The ADR price should track the local share price multiplied by the ratio and the exchange rate, less fees. Traders care because the gap between the ADR and the local line can reflect currency moves, trading hours, custody costs or limits on cross-border trading. The depositary can change the ratio, so check it in the program documents.
Worked example (illustrative numbers, not real data): a local share trades at 100 units of a currency. With a ratio of 1 ADR to 5 shares and an exchange rate of 0.05 dollars per unit, the implied ADR value is 25 dollars. If the ADR trades at 26 dollars, it is at a 4 percent premium before fees.