What is Initial Public Offering and how does it work?
IPO is nothing but Initial Public Offering. We see many IPO’s are coming this year for listing and people are very much interested in subscribing them.
Through the IPO, a company can become a publicly-traded company by selling a portion of its shares to the public and its name listed on the stock exchange.
A company can go for an IPO When promotors of the company want to raise additional funds for their existing business.
Offering an IPO is a money-making exercise for the company to fulfill its business requirements and a company will become a public company from privately held.
Purpose of the company to offer IPO can be the following,
- Working capital (to efficiently run day to day running of the business)
- Business expansion (Capacity expansion, New Branch, etc.)
- Debt repay (Repaying the existing loans)
- Companies can attract better management & employees.
Who can opt for IPO’s?
Advantages of Initial Public Offering allotment :
- You will get a chance to invest in the share very first time.
- Sharing financial gains of the company.
- Buy shares at cheap price, earn big returns (not all the time).
Is Initial Public Offering trustable?
- The IPO process is controlled by the Securities and Exchange Board of India (SEBI).
- Investment bank to handle the IPO.
- Companies must meet requirements by security exchanges and the SEBI rules and regulations to hold an initial public offering.
Checks before you invest in an Initial Public Offering?
We can invest in an IPO but finding the star is a bit difficult and Please follow the below steps before you invest in an IPO.
Don't put your eggs in a bad box and look for the below information of the company you might be interested in IPO. Enquire and check the Background of the company Company's business model Financial wellness & Fundamentals Reputation Operating income
Very importantly, You should know how they will utilize your money.
How to check the company information?
You will not find much information about the Company, because it is just going public now.
The red herring (Draft the Red Herring document) is the data on the IPO details which is provided in the prospectus, you need to analyze it thoroughly.
Few fundamental parameters that we need to analyze and keep checking,
- Pledged shares
- cash flow
- Promotor stake (Promotors holdings)
- Dividend payout
- Equity dilution
- Dividend yield
- EPS growth
- Revenue growth
- taxes paid
- P/E (Price to Earnings)
- Management & promotor credibility
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