Premium Essay

Ipo - What It Is

In: Other Topics

Submitted By shopgirl5
Words 2294
Pages 10
IPO
When a business is growing, but not as quickly as it could, the next best thing to do instead of borrowing capital is going public. A company can do so by creating an initial public offering, or IPO where they sell ownership shares of the business to the public. The IPO can open windows of opportunities for a business in terms of financial growth and public awareness. On the downside, an IPO can restructure a company’s management and everything about the company must be disclosed and viewed even by competitors. With this in mind, many companies who are deciding between whether to go public or not may have their second thoughts. I will be discussing the advantages and disadvantages that come with IPOs and the results that some companies have seen from going public.
What is an IPO? The initial public offering or IPO according to CNNMoney.com is “the first time that a company’s shares are traded on a public market.” It is the process where a privately owned company issues shares of stock to the public, in other words, the company is “going public.” Small private companies have IPOs to raise capital and gain public awareness, while large, well-established companies have IPOs to become publicly traded companies. A person who is interested in a particular company can buy one of two types of shares: common or preferred stock. When a company only issues one class of stock, it is called common stock. Common stocks are generally less expensive to purchase than preferred stocks. Preferred stocks have the first rights to any dividends, where preferred stockholders have a greater chance of receiving dividends than common stockholders (Duchac, Reeve, Warren, 586).
Should a Company go Public?
Many businesses, from start-ups to established companies may consider going public, but doing so may a complex process. Before going public, the company needs to…...

Similar Documents

Premium Essay

Understanding Ipos and Ipo Scams

...Understanding IPOs and IPO Scams You don’t have to spend too much time around the stock market to discover that there’s something fishy about many stocks’ initial public offerings, (IPOs).  The standing joke is that IPO really stands for “It’s Probably Overpriced”.  While that may or may not be true in any given case, there are a large number of pitfalls awaiting the would-be IPO trader or investor.  It’s a case of caveat emptor, and in order to be suitably wary you need to understand how an IPO works and how it can be manipulated to your disadvantage. An IPO is the means by which a private company is sold to the public.  The owners of the company will approach a major investment bank (sometimes referred to as a “bulge bracket” bank) to underwrite the IPO.  That bank will then create a syndicate of banks and brokerages to run the IPO.  Stock shares are then sold by the company to the syndicate and by the syndicate to the syndicate members’ customers.  The deal can be structured a couple of different ways, but in general the syndicate guarantees they will find buyers for the shares, accepting financial risk if they fail.  The syndicate sells the shares of the soon-to-be public company at a higher price then they acquired them.  This gap is set as part of the underwriting contract, and has historically been about 7%.  Once the shares have been “allocated” to the syndicate’s customers, the stock can begin trading on an exchange.  The bulge bracket bank which lead the IPO......

Words: 2268 - Pages: 10

Premium Essay

Valuing Ipos

...Journal of Financial Economics 53 (1999) 409 }437 Valuing IPOs Moonchul Kim , Jay R. Ritter * Department of Accounting, KyungHee University, C1 Hoegie-Dong, Dongdaemun-Ku, Seoul 130-701, South Korea Department of Finance, School of Business Administration, University of Florida, Gainesville, FL 32611-7168, USA Received 3 June 1997; received in revised form 18 August 1998 Abstract The use of accounting information in conjunction with comparable "rm multiples is widely recommended for valuing initial public o!erings (IPOs). We "nd that the price}earnings (P/E), market-to-book, and price-to-sales multiples of comparable "rms have only modest predictive ability without further adjustments. This is largely due to the wide variation of these ratios for young "rms within an industry. P/E multiples using forecasted earnings result in much more accurate valuations than multiples using trailing 1999 Elsevier Science S.A. All rights reserved. earnings. JEL classixcation: G24 Keywords: Initial public o!erings; Valuation; Comparable "rms * Corresponding author. Tel.: #1-352-846-2837; fax: #1-352-392-0301. E-mail addresses: kimc@nms.kyunghee.ac.kr (M. Kim), jritter@dale.cba.u#.edu (J.R. Ritter) This paper is based on Moonchul Kim's University of Illinois Ph.D. dissertation. We would like to thank seminar participants at Boston, Emory, Georgetown, Humboldt (Berlin), and Vanderbilt Universities, the Universities of Miami and Texas, the Stockholm School of Economics, the Chinese......

Words: 13092 - Pages: 53

Premium Essay

Ipo Paper

...James Holliday April 3, 2011 FI516 IPO Paper Identify the company and its industry. Pandora Media, Inc. is an internet streaming radio service used by more than 80 million listeners. Pandora, which has a catalog of 800,000 songs from more than 80,000 artists, has roughly half the market for Internet radio in 2010, according to a study published in November by Ando Media. Though the service is wildly popular, it has yet to make a profit. The Internet radio station generates playlists based on a user's favorite artist or song. As part of the company's Music Genome Project, songs are analyzed according to musical features -- including details of instrumentation, harmony, lyrics, melody, rhythm, and vocals. Users enter the name of a song, and Pandora creates a playlist of songs with similar characteristics. Pandora's service, free to its more than 80 million registered users and available only in the US, is supported by local and national advertising. Pandora chief strategy officer Tim Westergren founded the company in 2000 and it filed for an IPO in 2011. Discuss important financial and other facts about the company from its SEC filings. In its papers filed with the Securities and Exchange Commission, Pandora reported a $16.8-million loss on $55.2 million in revenue for its fiscal year ended Jan. 31, 2010. From Feb. 1, 2010 through Oct. 31, Pandora narrowed its losses to $328,000 on $90.1 million in revenue. Because Pandora is largely a free service, only 9% of its...

Words: 925 - Pages: 4

Premium Essay

Ipo Valuation

...|IPO Valuation Procedure in Bangladesh | | | | | | | Internship Report IPO Valuation Procedure in Bangladesh Prepared for: Professor Shakil Huda Chairman IBA Career Center Institute of Business Administration University of Dhaka Supervised by: MsSyedaMahrufa Bashar Lecturer Institute of Business Administration University of Dhaka Prepared by: Asif Rezwan Roll: 64, MBA 44D and Management Trainee Officer, LankaBangla Investments Limited Institute of Business Administration University of Dhaka June 24, 2012 June 24, 2012 MS. Kanij Fahmida Assistant Professor Department of Accounting Faculty of Business Studies Bangladesh University of Business & Technology(BUBT) Dear Sir, Subject: Letter of Transmittal for Internship Report I, Ibna Shina Shibly, am submitting my internship report on “IPO Valuation Procedure in Bangladesh”. The internship period and the subsequent effort in writing this...

Words: 7525 - Pages: 31

Premium Essay

What Is an Ipo

...What is an Initial Public Offering (IPO)? How does an IPO allow an organization to grow financially? An initial Public Offering (IPO) is the first sale of stock by a private company to the general public. It allows the company to raise money, and it also allows the comapny to gain future access to the public markets When is a merger or an acquisition, rather than an IPO, a more appropriate way to grow? When the purpose that you are looking for is synergy more than capital for further investments. Select a recent IPO and use the Internet to identify the following characteristics of the selected IPO: I chose GT Solar International a.     Initial offering price: $16.50 b.    Price 1 month after offering c.     Current market price: $9.23 d.    Number of shares outstanding at the time of the IPO 142,375 e.     Number of shares outstanding 1 month after offering 142,390 f.     Current number of shares What features of common stock indicate ownership in the company? What is the ways shareholder’s benefit from ownership?  * Claim on Income Common stockholders are entitled to a share of the profits in the form of dividend or it can be retained and reinvested in the company. The amount of dividend payments is not based on a fixed percentage rate, it is recommended and decided by the board of directors. * Claim on Assets If a company goes bankrupt and liquidates all its assets, the common stockholders have the right to receive their share of sale......

Words: 511 - Pages: 3

Free Essay

Ups Ipo

...Rebeka Ramos Panther ID - 1948265 ACG – 6175 Case 3: United Parcel Service’s IPO 1. How is UPS performing? Back up your assessment with your financial analysis. What factors are driving this performance? Since it first opened for business 1907, UPS has proven to be a worthy competitor and more importantly a threat to be taken seriously. By 1999, after almost a century in business, UPS had captured 51% market share of the $43 billion dollar US package delivery industry. That same year they were named “Company of the Year” by Forbes and the “World’s Most Admirable Global Mail, Package, and Freight Delivery Company” by Fortune. They reported over $25 billion in revenue, which they attributed to their loyal employees, extensive geographical reach, and strong customer relations. They had become the largest parcel delivery company in the world, daily having contact with over 1.8 million customers, picking up 13 million packages, and making delivers to over 6 million business and residential addresses worldwide. Several key factors played a considerable role in UPS’ exceptional performance and industry success. For starters, UPS has always been committed to innovation, beginning as early as 1920 with its invention of the first ever-mechanical sorter and conveyor built system. UPS is also been credited with breaking new ground in delivery logistics, after creating the model for and implementing the practice of consolidating deliveries based on neighborhood groupings.......

Words: 1111 - Pages: 5

Premium Essay

Alibaba Ipo

...Alibaba’s IPO set to become the largest US IPO ever. On Friday morning when the New York Stock Exchange opens, $68 dollars per share is what investors will have to fork out in order to get a piece of what is set to be the largest IPO for a US-listed company. The amount raised is expected to be $21.8 billion dollars and could even be more should underwriters decide to exercise their options to buy more shares from shareholders including founding chairman Jack Ma, Joseph Chai, and Yahoo. With the price set at $68, alibaba will be worth more than their US competitor Amazon with a market value of $167.6 billion dollars. The e-commerce company’s large gross merchandise volume has been a factor in deciding the potential of the IPO as Alibaba has a larger volume than ebay and Amazon combined. Wall street has been more than excited with the potential that this stock has. While I have to agree that the stock does sound promising, I think that investors should proceed with caution. When Facebook debuted their stock on Nasdaq in 2012, everyone highly anticipated the IPO. In the end, the stock just barely made even on the first day and performed poorly for months. With the price already so high before the stock hits the market, investors should learn from experience and take precaution. Why? While from the revenue reports the company has shown very good prospect, the company is facing stiff competition from their China competitors in the e-commerce front. Tencent, it’s......

Words: 583 - Pages: 3

Premium Essay

Ipo Case

...and balance sheets for Netscape for 1994 and 1995, comparative information on potential competitors, historical data of the IPO market and information on Internet-related IPOs. Additional data was used through key assumptions made to develop the pro forma cash flow analysis. Assumptions The key assumptions used in this case are listed in Table 1 and they are based on similar data and experiences for Microsoft. Table 1 Key assumptions used for Netscape IPO analysis. Assumption Value Total cost of revenues (% of total revenues) 10.4% R&D (% of total revenues) 36.8% Other operating expenses (% of revenues) Decline on straight-line basis from 80.9% of total revenues in 1995 to 20.9% in 2001 Capital expenditures (% of revenues) Decline on straight-line basis from 45.8% of revenue in 1995 to 10.8% of revenues in 2001 Depreciation (% of revenues) 5.5% Changes in net working capital 0 Long-term (or terminal) growth rate 4% Long-term risk-free interest rate 6.71% Discount rate 12% Number of shares outstanding 32,767,000 New issue shares 5,000,000 Pro forma time period 1995-2005 Analysis The base analysis for this case was to estimate a value for Netscape Communications Corporation, and to determine the yearly revenue growth rate required for the firm to support a per share IPO price of $28. The pro forma estimates and results of this base analysis are shown in Exhibit 1. Table 2 summarizes......

Words: 437 - Pages: 2

Free Essay

Ipo Pricing

...IPO pricing and allocation: a survey of the views of institutional investors * Tim Jenkinson Said Business School, Oxford University and CEPR Howard Jones Said Business School, Oxford University Abstract Despite the central importance of investors to all IPO theories, relatively little is known about their role in practice. In this paper we survey institutional investors about how they assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. Although the theoretical IPO literature has tended to focus on information revelation, the survey raises doubts as to the extent of incremental information production and whether bookrunners are, in practice, able to infer investors’ valuations from their bids. We find that investor characteristics, in particular broking relationships with the bookrunner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks. JEL classification: G23, G24 Keywords : IPO, institutional investors, survey * Corresponding author: Tim Jenkinson, Saïd Business School, 1 Park End Street, Oxford OX1 1HP, UK. e: tim.jenkinson@sbs.ox.ac.uk; t: +44 1865 288916; f: +44 1865 288805. We are very grateful to the Investment Management Association, in particular Tina Johnson, Jane Lowe, and Gordon Midgely, and the Alternative Investment Management Association,......

Words: 11460 - Pages: 46

Premium Essay

Twitter Ipo

...TWITTER: IPO PAPER By: Jarmar Jackson   1. Identify the company and its industry. The name of the company I choose to do my IPO paper on is Twitter, Inc. (TWTR). Twitter is in the Technology/ Internet Information Provider industry. It is an online social networking website that allows users to send 140 character messages called “tweets”. The headquarters is located in San Francisco but it has more than 25 offices around the world. Twitter was launched by Jack Dorsey, Evan Williams, Biz Stone, and Noah Glass on July 15, 2006. The website handles nearly 1.6 billion searches a day and as of July 2014 it had more than 500 million users for the website. Jack Dorsey is the chairman and Dick Costolo is the CEO of the company. Some of Twitter’s biggest competitors are Facebook (FB), Google (GOOG), and LinkedIn (LNKD). Twitter currently has a market cap of 24.06 Billion while competitors Facebook and Google have market caps of 212.88 billion and 356.32 billion respectively. One article on ektron.com speaks of why Twitter is better than Facebook is that Twitter allows for user to follow complete strangers. While this sounds like something most people would defer from this gives Celebrities, Actors, Athletes, and even different businesses to stay close to their fans and customers. This also gives users to feeling of being close friends with celebrities while also sharing different pictures and other types of media. This differs from Facebook where it is suggested that you......

Words: 1156 - Pages: 5

Free Essay

Goog Ipo

...•What is the outlook for the search industry as seen in 2004? What are Google’s strengths and weaknesses in its main business line? •Do you think Google should go public? To answer this question, list the pros and cons of doing an IPO, and assess these points in the context of Google. Consider Google’s competitive position in its industry, the market conditions, concerns of managers, firm’s financial health, etc. Pros and Cons of doing an IPO: Pros Cons An IPO allows a company to tap a wide pool of investors to provide itself with capital for future growth, repayment of debt or working capital. • Significant legal, accounting and marketing costs •Get new capital to sustain growth/improve financial position. • Ongoing requirement to disclose financial and business information •Greater liquidity for firm’s equity. • Meaningful time, effort and attention required of senior management •Potential increase in equity value. • Risk that required funding will not be raised •Diversification of initial share holders’ personal portfolios and easier transfer of ownership. • Public dissemination of information which may be useful to competitors, suppliers and customers Google would be under intense scrutiny from Wall Street because of many failed IPO’s for the past couple of years. They also have a lot of competition from Yahoo and Microsoft. An area of concern was that Microsoft might design a version of its text processing software that could block the access......

Words: 464 - Pages: 2

Free Essay

Ipo Facebook

...Facebook announced its $5 billion IPO late Wednesday afternoon. But what is all the hype about? What is an IPO, how does it work, and will a publicly traded Facebook affect how we use the social network on a daily basis? Here's a quick guide. WHAT EXACTLY IS AN IPO? When a privately owned company makes an Initial Public Offering, it means they're moving to be publicly traded on the stock market for the first time. That means that anyone can buy stock in the company and own a portion of it. Ads By Google Online Trading Plus500®: APPL, Ebay, HP Commodities, No Fees! www.Plus500.no Bilforsikring -Sjekk pris Nemi Bilforsikring testvinner i VG. Sjekk din pris på bilforsikring her neminordvest.no/bilforsikring UK Fixed Income Aberdeen Managed UK Fixed Income Assets. Learn More. Aberdeen-Asset.NO Going public can help a company raise significant capital if a lot of people want to buy its stock. It also means that the company has to publicly disclose details about its finances, like its earnings, that it previously kept private. WHO DECIDES THE VALUE OF AN IPO? An investment bank determines how much money the company can expect to make on the stock market based on a number of factors, from the health of the economy to how popular the company's product is expected to be in the future. The initial valuation is always a bit of a gamble, since the stock has never been traded publicly before, and analysts can't look at past behavior to figure out how it should......

Words: 860 - Pages: 4

Free Essay

Ipo Case

...CASE: A-197 DATE: 02/05/09 BAIDU.COM, INC.: VALUATION AT IPO Since its official launch in January 2000, Baidu.com, Inc. (Baidu) quickly grew to become the leading Internet search engine in China. After three rounds of private funding, Baidu registered to go public on the NASDAQ Stock Market (Ticker Symbol: BIDU) on August 5, 2005. (See Exhibits 1 and 2 for a listing of Baidu’s private funding sources and pre-IPO share allocations.) The initial public offering (IPO) turned out to be one of the highest-profile debuts since the Internet bubble burst in 2000. The stock price jumped 354 percent on the first day of trading and closed at $122.54, valuing the company at about $3.96 billion based on 32.3 million shares outstanding. While the market showed strong enthusiasm for the stock, Baidu’s public offering nevertheless generated much debate in the investment community about the underlying value of the firm. Furthermore, concerns were raised about whether or not Baidu was able to sustain its growth rate and exceed investor expectations after the IPO. Factors leading to this uncertainty included: the state of the Internet-paid search market in China, the expected growth in the marketplace, the competitive landscape, and the strength of Baidu’s business model and strategic position. BACKGROUND ON CHINA’S ADVERTISING AND ONLINE ADVERTISING MARKETS Advertising Market From 1995 to 2005 China’s advertising market grew at a compounded annual growth rate (CAGR) of 17...

Words: 11662 - Pages: 47

Free Essay

Equtity and Ipo

...   $500,000  of  your  money  and,  in  return  received  100,000  shares  of  stock.   Since  then,  you  have  sold  an  addiNonal  50,000  shares  to  angel  investors.   You  are  now  considering  raising  even  more  capital  from  a  venture   capitalist  (VC).     Funding  and  Ownership   Problem  (cont’d):   •  This  VC  would  invest  $15  million  and  would  receive  1,000,000  newly   issued  shares.  What  is  the  post-­‐money  valuaNon?  Assuming  that  this  is  the   VC’s  first  investment  in  your  company,  what  percentage  of  the  firm  will   he  end  up  owning?  What  percentage  will  you  own?  What  is  the  value  of   your  shares?   Funding  and  Ownership   SoluNon:   Plan:     •  ASer  this  funding  round,  there  will  be  a  total  of  1,550,000  shares   outstanding:        Your  shares                                                500,000        Angel  investors’  shares          50,000        Newly  issued  shares           ......

Words: 2751 - Pages: 12

Free Essay

Facebook-Ipo

...Stockholder’s Equity 3.7 Dividend Policy Chapter IV Facebook Initial Public Offerings(IPOs) 4.1 IPOs Advantage 4.2 Preparing to go to Public 4.3 Facebook IPOs 4.4 Facebook IPOs Underwriting Company 4.5 Facebook IPOs Counsel Company 4.6 Facebook IPOs Financial Auditor 4.7 Why Facebook go to Public? 4.8 U.S. Stock Market 4.9 Which Market Facebook Plan to Listing? 4.10 Facebook IPOs Advantage and Opportunities Chapter V Conclusion Reference 1 2 3 3 3 4 5 7 7 8 9 10 10 12 14 15 16 17 18 19 21 22 23 24 27 27 28 29 30 33 34 36 CHAPTER I INTRODUCTION AND OBJECTIVES 1.1 Introduction Nowadays, firms objective generally relate with the firm financial management, firm objectives aim to provide maximize shareholder wealth and firm financial management aim to get returns in satisfy level from investment. Financial department responsibly set up company goals to make profit and liquidity cash flow. Managements have to forecast the company needs such as anticipating, acquisition for lowest cost of fund (WACC), then allocate to the project through effective capital budgeting. Investments in different project areas are needs more fund. There are many source of fund firm could be raise. Firstly, the company budgeting comes from internal source which is retained earning. However, if internal fund is not cover up, external source will be the alternate. There are many ways to funding from outside for example IPO, warrant and bank loan which are different advantages, disadvantages......

Words: 7183 - Pages: 29