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What are the pros and cons of company's IPO? Should company be floated at all?
Pages 3 (753 words)
Initial public offer (IPO) refers to the process whereby a company sells its first shares. It is a method typically used by small companies to accelerate their development. It provides the needed source of capital for expansion.
Although the aim of growth is to bring benefits to the company, there exist both pros and cons that can arise from this process of going public (Helwege 2004, p.541). Pros and cons of Initial Public Offer (IPO) There are several advantages that accrue to a company by going public. As mentioned above, the principal advantage is the financial benefit through raising capital. An IPO adds a value on the company's stock. In addition, those insiders retaining stock are able to sell their shares or even use them as collateral (Datta 2000, p.715). Going public also creates a currency type in the form of its stock, which can be used in making acquisitions. In addition, there is a possibility that the company can access the capital markets for its future financing needs. Overall, a company's debt-to-equity ratio improves considerably after an initial public offering, which indicates that the business is likely to earn more favorable loan terms from its lenders (Datta 2000, p. 716). Another advantage is the increase of public awareness of the company. IPOs normally produce more publicity by increasing the awareness of their products to a new group of potential customers. Subsequently this is expected to increase the company’s market share. The founders can also use the IPO as an exit strategy. Many venture capitalists have tried this in an attempt to open up successful companies (Hao 2007, p.112). ...
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