Difference Between IPO and FPO, Pros and Cons [Explained]

IPO and FPO : With growing usage of Internet over the period, online trading graph is growing at faster pace. Many people have keen interest in Online earning by investing in Stocks, Mutual Funds, Shares and Mutual Funds. But few terms like IPO and FPO are new to people and also they are bit confused with these terms. So here is the brief comparison of IPO and FPO.

IPO and FPO

What is IPO?

An IPO, or Initial Public Offering, is a significant financial event for a company. It is the process of offering shares of a private company to the public for the first time, allowing anyone to purchase ownership in the company. IPOs provide a significant source of capital for companies that wish to expand their operations, finance new projects or pay off debts. In this essay, we will discuss the IPO process, its advantages, and disadvantages.

IPO Process

The IPO process typically involves a few steps. First, the company hires investment banks to underwrite the offering. The banks help the company set the offering price and determine the number of shares to be sold. Then, the company prepares an offering prospectus that contains detailed financial and operational information about the company. This prospectus is distributed to potential investors, who can then decide whether to invest in the company.

After the IPO is complete, the company’s shares are listed on a public stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. The shares can then be bought and sold by anyone with access to the exchange.

Advantages of IPO

One of the primary advantages of an IPO is the infusion of capital it provides to the company. By going public, a company can raise a significant amount of money, which can be used to finance new projects or pay off debts.

The IPO process also provides liquidity to the company’s existing shareholders. Prior to the IPO, shares in a private company are illiquid and can only be sold to other investors at the discretion of the company’s management. After the IPO, shares can be bought and sold on the stock exchange, providing an opportunity for shareholders to cash out their investments.

Another advantage of an IPO is increased visibility and credibility. Going public can provide a level of prestige and recognition to a company, which can be beneficial when attracting new customers, employees, and partners. The increased visibility also provides a level of transparency to investors, who can review the company’s financials and operations before investing.

Disadvantages of IPO

However, there are also some disadvantages to an IPO. First, the IPO process can be time-consuming and expensive. The company must pay underwriting fees to the investment banks and other expenses related to the offering. Additionally, the company must comply with public reporting requirements, which can be costly and time-consuming.

Another disadvantage of an IPO is the loss of control over the company. Once a company goes public, it is subject to the whims of the market and its shareholders. This can lead to pressure from investors to focus on short-term financial results rather than long-term growth and sustainability.

Conclusion

In conclusion, an IPO is a significant financial event for a company, providing it with the capital and visibility it needs to grow and expand. However, there are also some drawbacks to going public, such as the loss of control and the costs associated with complying with public reporting requirements. Companies considering an IPO must weigh these advantages and disadvantages carefully before deciding to go public.

What is FPO?

An FPO, or Follow-On Public Offering, is a process by which a publicly traded company issues additional shares of its stock to the public. This type of offering differs from an IPO in that the company is already publicly traded and has a history of trading on a stock exchange. In this essay, we will discuss the FPO process, its advantages, and disadvantages.

FPO Process

The FPO process typically involves a few steps. First, the company decides to issue additional shares of its stock to the public. The company then hires investment banks to underwrite the offering. The banks help the company set the offering price and determine the number of shares to be sold. Then, the company prepares an offering prospectus that contains detailed financial and operational information about the company, which is distributed to potential investors.

After the FPO is complete, the new shares are listed on a public stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. The shares can then be bought and sold by anyone with access to the exchange.

Advantages of FPO

One of the primary advantages of an FPO is the infusion of capital it provides to the company. By issuing new shares, a company can raise a significant amount of money, which can be used to finance new projects or pay off debts. Additionally, an FPO can provide liquidity to the company’s existing shareholders, who can sell their shares in the offering.

Another advantage of an FPO is the increased visibility and credibility it provides to the company. By issuing new shares and engaging with the investment community, the company can improve its visibility and attract new investors. This can lead to an increase in the company’s stock price and a decrease in its cost of capital.

Disadvantages of FPO

However, there are also some disadvantages to an FPO. First, the offering process can be time-consuming and expensive. The company must pay underwriting fees to the investment banks and other expenses related to the offering. Additionally, the company must comply with public reporting requirements, which can be costly and time-consuming.

Another disadvantage of an FPO is the dilution of existing shareholders’ ownership. When a company issues new shares, the ownership percentage of existing shareholders is reduced, potentially leading to a decline in the value of their shares.

Conclusion 

In conclusion, an FPO is a significant financial event for a company, providing it with the capital and visibility it needs to grow and expand. However, there are also some drawbacks to an FPO, such as the costs associated with complying with public reporting requirements and the potential for dilution of existing shareholders’ ownership. Companies considering an FPO must weigh these advantages and disadvantages carefully before deciding to issue new shares.

Also Read :

Indian Economy

Best 5 Apps For Trading

Leave a Comment