IPO'S Initial Public Offers

I. What is an IPO?

An Initial Public Offering (IPO) is basically a company’s first sale of equity to the public, generally in the form of shares of common stock, through an investment-banking firm. The stocks are sold in the primary market at a determined price and then are subsequently sold in the secondary market. This process transforms the company from a private to a public firm. IPO involves the stock from a young and oftentimes little-known company. But occasionally well-known and well-established firms do go public.

Most of the companies go to the Stock Exchange to finance their expansion of manufacturing or service capacity or marketing activities that have an immediate impact on earnings. On the other hand, star-up companies also use IPOs as a layer of working capital.

IPOs help to create a public market for the company’s shares, providing desired liquidity to existing owners as well as supplying necessary funding.

II. Why do companies issue an IPO...