Basics of an IPO
- Pre-tax income of a company
- Net tangible assets
- Share price
NYSE, New York Stock Exchange is considered to be the most stringent of an exchange. While NASDAQ, National Association of Securities Dealers Automated Quotations, another exchange in US, sets more flexible requirements for the companies. Hence small companies and start ups which do not meet the requirements of NYSE opt to get listed on NASDAQ. A point worth noting here is that NYSE is a physical exchange while NASDAQ is an electronic exchange.
- Borrowing loan from the bank
- Selling bonds i.e. creating debt (Don’t worry if you are not clear on this, we will cover bonds in the posts to come)
- Selling equity/shares to the investors
- Raising cash by selling equity is cheaper than borrowing loan from a bank or creating a debt.
- The stock price may well rise above the initial level when it is trading in the secondary market.
- A very large sum of money can be raised through an IPO. We will look at some biggest IPOs after this discussion of the pros and cons.
- After an IPO a company becomes well known and if the stock price appreciates, the company gains good credibility which makes further fund raising a little easier.
- Stock prices might fall in the secondary market.
- The 100 % ownership of the company is diluted and some of it is then in the hands of investors.
- Issuing an IPO itself incurs cost. We will discuss it in details once we get to the process through which an IPO is issued in the coming posts.
- The company to woo the investors has to share with them some vital information like finances of their company, which it otherwise would not, as the competitors can take benefit from such an information.
|5||Deutsche Telekom AG,|
German telecom giant
Europe’s leading energy providers
American credit card
Japanese wireless phones
And the biggest IPO ever is
|1||Industrial and Commercial|
Bank of China