Financial Markets and Investment Analysis

Financial Markets and Investment Analysis

Introduction

Financing is a very vital part of any business organization. Financing maybe required at any point in time for the business to perform well. Not only is a start up capital important but in order to meet the day to day running costs financing is required. Financing also provides for a business to expand further. However there are many possible sources of financing available to a business, it has to be chosen wisely as the most suitable form of financing varies from the nature of business to business. Larger organisations often have more sources of financing available to them when compared with smaller companies (Petersen, 1994).

Discussion

There may be various ways to raise equity capital for a new business. However, the most common and famous method is to float shares on stock exchange, which is also known as IPO (Initial Public Offering). The shares of public limited companies can be floated and then traded on the stock market. Any member of the general public can therefore become an owner of these organisations. This is the first issue of shares to the general public after the registration of the securities in the Securities and Exchange Commission. The offering of shares registered transforms the company private in a company listed on Stock Exchange and, therefore, subject to the requirements of transparency and regulatory oversight of the SEC. The other method to raise equity capital is by venture capital.

The purpose of the IPO

There are several main purposes of the IPO, the importance of which may vary depending on the case:

Attracting capital to the company: the IPO allows the company to access capital much larger number of investors.

Availability of stocks traded on the capital market provides the most objective assessment of the value of the company, which can be used as a tool for performance measurement and motivation of managers, or a reference to mergers and acquisitions.

The founders of the company have the opportunity to sell all or part of their shares and thereby capitalize on anticipated future revenues of the company.

Liquidity of capital after the IPO founders also increased sharply, for example, banks are much more willing to give out loans secured by shares of listed (public) companies than private (private) companies.

In UK realities large number of investors after the IPO is to some extent protected from unlawful actions of the state and potential raiders.

After the IPO, the company goes public, accountability - clear and transparent, which is a priority for most companies.

Stages of IPO

Alienation of securities of the issuer in favor of the purchasers as a result made an initial public offering is the final stage in a series of actions and procedures that commits the issuer to maximize the sale of the securities offered in the market. In general, IPO involves the following steps:

Preliminary stage - at this stage of issuing a critical analysis of their financial and economic situation, the organizational structure and the structure of assets , information (including financial) transparency, ...