Initial Public Offer (IPO)

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Initial Public Offer (IPO)

Initial Public Offer (IPO):

Initial Public Offer (IPO)  is the first sale of shares by the privately owned company to the public. The companies going public raises funds through IPO for working capital, debt repayment, acquisitions, and a host of other uses.

Initial public offering

Initial Public Offer (IPO) is an abbreviation of Initial Public Offer. When a company is going for a process of getting listed on the stock exchange and publicly traded, IPO is the first public offering, it is the main source of the company in acquiring money from the general public to finance its projects and the company allots shares to the investors in return.

All the business entities need fund flow to finance their day to day operations. Therefore, for raising funds for the business there are two ways i.e. in the form of equity or through debt which represents the borrowed capital of the company. In equity, the entity approaches various individuals to sell its shares at a fixed price and when it is done for the first time it is referred to as Initial Public Offer (IPO). While on the other hand, when the shares are offered for sale for the subsequent public contribution it is referred to as FPO.

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

Prior to an IPO, a company is considered private. As a private company, the business has grown with a relatively small number of shareholders including early investors like the founders, family, and friends along with professional.

When a company reaches a stage in its growth process where it believes it is mature enough for the rigors of SEC regulations along with the benefits and responsibilities to public shareholders, it will begin to advertise its interest in going public.

An IPO is a big step for a company. It provides the company with access to raising a lot of money. This gives the company a greater ability to grow and expand. The increased transparency and share listing credibility can also be a factor in helping it obtain better terms when seeking borrowed funds.

KEY TAKEAWAYS

  • An initial public offering(IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.
  • Companies must meet requirements by exchanges and the SEC to hold an initial public offering(IPO).
  • IPOs provide companies with an opportunity to obtain capital by offering shares through the primary market.
  • Companies hire investment banks to market, gauge demand, set the IPO price and date, and more.
  • An IPO can be seen as an exit strategy for the company’s founders and early investors, realizing the full profit from their private investment.

Differences Between IPO and FPO:

an Initial Public Offering(IPO), previously unlisted companies can go public and issue shares through subscription. IPO is that the opening before shares of an organization are officially listed for trading on stock exchanges.

A Follow-on Public Offering(FPO) may be a sale of shares by a publicly trading company for the second or third time or consecutive time.

another difference between IPO and FPO is what proportion an investor knows about the corporate before buying allotted shares. just in case of an IPO, all that investors need to fade is that the company’s red herring prospectus. Here investors might want to take an offering supported market interest within the company, performance outlook, management, debt on the books, among other factors. Here investors haven’t any previous guidance or data. Though, there are some companies or traditional family businesses that have stayed profitable, stable and reputed whose IPOs are highly awaited by the markets.

In this case of an FPO, investors have some track record of how the previous public issues have performed and what the market interest was like, which may or may not be the best indicators of how the issue will perform this time around. Previous sales of equity stakes can be a good indicator of whether or not the stock is liquid.

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