IPO
An initial public offering (IPO) is the very first offer of stock for sale by a company on the open market. In other words, an IPO marks the first time that a company is traded on a public exchange. Companies have an IPO to raise capital to expand (usually).
One way for a company to raise money is through the issuance of stocks or bonds. Here are brief explanations of each:
- Issuance of Stocks (Equity Financing): A company can raise funds by selling shares of its ownership, known as stocks or shares of common stock, to investors. Investors who purchase these shares become shareholders or equity owners in the company. The company receives capital in exchange for a portion of ownership. This method is common for both publicly traded companies (which sell shares on stock exchanges) and private companies (which may issue shares to private investors).
- Issuance of Bonds (Debt Financing): Another way for a company to raise money is by issuing bonds. Bonds are debt securities that companies sell to investors. When an investor buys a bond, they are essentially lending money to the company for a fixed period, and in return, the company agrees to pay periodic interest payments and return the principal amount at the maturity date. Unlike stocks, bonds represent a form of debt for the company, and bondholders are creditors.
Both equity financing (stocks) and debt financing (bonds) are common methods for companies to raise capital for various purposes, such as expansion, research and development, acquisitions, or debt repayment. The choice between these methods depends on the company’s financial strategy, risk tolerance, and capital structure preferences.
