Initial Public Offering (IPO)
Raising funds at the appropriate time and from legitimate means to benefit the organizations’ expansion and growth is an important part of the business. There are many financial instruments that can be opted to raise long term and short term capital for the business.
Initial Public Offering, often abbreviated as IPO is a significantly used term of financial instruments amidst the larger and reputed business players in the market. The essentiality of initial public offerings is on a verge of immense boost up with almost all organizations aiming to expand their businesses by raising more funds.
IPO, the expansion of this abbreviation is by and far self-explanatory. It refers to the initial offering wherein organizations open up and offer their stocks to the common public. The sole purpose of this initial public offering is to pool funds for expansion by transferring the company’s stock to those who offer monetary inputs for it. This fund can be raised via equity or debts which are two important terms that relate to the finances of the company. The company is then entitled to issue its financial reports on a quarterly basis and the board of directors has to be answerable to the stakeholders on the benefits that investing in their company would derive them.
Importance of IPO
- Going Public is often termed as the ultimate key to financial success. Initial Public Offerings’ importance is much acknowledged when it comes to expansion strategies. If a company looks forward to expanding its business arena, the time consumed while raising enough funds and resources might be long enough to make the company lose the right opportunity in the market. Here is when Initial Public Offerings come to have back of the companies who are willing to grow. IPOs therefore, promote business and financial growth by raising funds in a manner that is comparatively easier than pooling the entire money from business profits.
- Another importance of IPOs is acknowledged when acquisition or merging has to take place. In such conditions, shares can be offered as a payment mode and this can ease the entire process of merging and acquisition.
- Also, not only the company but the owners too enjoy certain benefits of IPO. The owners usually treat themselves with a significant percentage in the company’s stocks and thereby encash a substantial value from it.
Thereby, it can be rightfully concluded that Initial Public Offerings are a vital part of the business expansion for they bring along a substantially good financial instrument to raise funds from the market by going public.