Introduction to initial public offering (IPO)
- An initial public offering (IPO) refers to granting shares of a private corporation to society in a new stock issuance. Public share issuance permits a company to increase capital from public investors. The change from a private organisation to a public organization can be essential for private investors to effectuate gains from their investment ultimately.
- It typically covers share premiums for current private investors. An IPO is a big step for any company as it presents the company with access to raising a lot of money. This gives the Company a higher ability to grow. The heightened transparency and share listing credibility are also factors in helping it obtain better terms when seeking borrowed funds.
Understanding IPO
Preceding an IPO, a company is seen as private. As a private company, the business has developed with a comparatively small number of shareholders, including early investors like the family, friends and founders, and professional investors like venture capitalists or angel investors. When a company enters a stage in its growth process where it considers that it is mature enough for the difficulties of SEC regulations along with the benefits to public shareholders, it will start advertising its interest in going public.
Factors To Consider
Investment goals - Before you invest in an IPO, you have to ask yourself what kind of strategy you need to follow. You cannot decide what kind of investment decision is the best one for you unless your investment goals are clear.
Investment horizon - A short-term strategy mainly depends on prevailing market sentiments, and a long-term plan will constrain you to recognize the fundamentals of the Company.
The right IPO- Once you have chosen your investment goals, you still have to determine the right IPO to invest in.
Analyzing An IPO
- Credibility and track record of the promoter
- Product and services of the Company
- Past performance of the Company proposing the IPO
- Involves risk factors
- Project cost, means of financing and profitability projections
Benefits Of An IPO
IPO lets companies raise capital by selling shares. Moreover, companies do not have to repay the capital.
Companies can offer stock as an incentive or as part of an employment contract. This is used to retain key people. Equity can be used to purchase other businesses.
By getting listed on a stock, the exchange business receives comprehensive media coverage, enhancing the Company’s visibility of its services.
