Basics of Stock Market - Beginner

IPO Benefits

An IPO (initial public offering) is when a stock company goes public for the first time. A company is looking to raise capital to expand its business and offers the stock to the public.

Public issues are when companies invite the public to contribute to equity. They also issue shares to satisfy their fund requirements. Investors share ownership. By purchasing shares in a company, one becomes a shareholder and an owner of the company according to the share value.

These are the advantages

  • IPOs allow companies to raise capital through the sale of shares. Companies don't have the obligation to repay capital raised by IPO.

  • Stock can be offered by companies as an incentive, bonus or part of an employment agreement. This can be used to retain top employees. Equity can also be used to buy or acquire businesses.

  • Being listed on a stock exchange increases company visibility and recognition.

There are disadvantages

  • Companies must disclose financial and critical information on a regular schedule.

  • Public companies are governed by directors, who oversee the management's actions for shareholders. In some cases, however actions may be restricted.

  • Publication is a time-consuming and expensive process. Regardless of whether or not an IPO succeeds, there will be significant legal, accounting, and printing costs.

Analyzing an IPO

  • Promoter credibility and track record

  • The company's products and services and their potential

  • Performance of the company offering the IPO in the past

  • Projections of profitability, financing options and project cost

  • Involves risk factors

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