What Is An IPO

What Is An IPO
What Is An IPO

Video: What Is An IPO

Video: What Is An IPO
Video: What is an IPO? | CNBC Explains 2024, March
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The laws of modern commodity-money relations are such that the value of enterprises that produce some goods, or companies that provide services, depends not only on how well they do it. Today, an important factor in the success of companies is the level of trust of financiers in them, which is expressed in the price of shares on stock exchanges. The issue of such shares is directly related to the IPO - Initial Public Offering.

What is an IPO
What is an IPO

For the development of companies or enterprises, working capital is needed, which can be obtained in several ways. The simplest one is to apply to a bank for a loan. Such capital itself will have a value - after all, certain interest will have to be paid for the money received from the bank. Another way is to attract investors' money. For large enough enterprises, the most profitable way to do this is to issue securities and place them on the stock exchange. This procedure - preparation, issue and placement of company shares on stock exchanges - is called the English abbreviation IPO, which can be most accurately translated as "initial public offering".

The placement procedure is not as simple as it might seem. Moreover, it is very expensive. The procedure begins, as a rule, with a comprehensive analysis of all aspects of the company's activities - it is necessary to identify weaknesses in financial and economic activities, in the structure and even in history. All the deficiencies found must be eliminated before the issuance of securities, otherwise the result of the IPO may have a negative effect.

When such an analysis is done, and it becomes clear that the identified bottlenecks are subject to correction, a team is created to deal with this entire process. With its help, all the necessary formalities are carried out, regulating the actions of the issuing company and the issued securities themselves. This team creates a document called an "investment memorandum" - it must contain all the factual data that a potential investor may need to make a decision to purchase the issued shares.

When all the preparatory operations are completed, an advertising campaign begins, which largely determines the demand for the shares being placed, and hence the success of the IPO. If successful, the price of the working capital and investment capital attracted by the company will decrease significantly. But for investors, even the very fact that a company is ready for an IPO indicates that it has reached a certain and sufficiently high level of development.

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