What is IPO ?
Initial Public offering
Well, the meaning of IPO is Initial public offering, In simple words it's a listing process of the company in the stock market, It's listed in the primary segment of the stock market in which the people bid for the share and the company offers the shares to the investors, Once the shares are allotted then you can sell it in the secondary segment of the company where the shares are traded.
What is the Purpose of an IPO?
Well, the purpose of an IPO is mainly fundraising from the Public and investors for business, If we pay the money company will offer us shares, and the money you paid is used as funds for business and you are also part of the profit that the company earns, And when the company shares its profit with the investor we that money is called it as a dividend. It's like an interest given by the bank but it's not interest. Share is a kind of certificate that says you are also the owner of the company. And actually are the owner of the company if you buy the share. More the share you have more the power and control of the company you have.
And the other reason why the company wants the IPO is, when the company was started owners may raise funds from Angel Investor, Venture Capitalist, or other investors, those investor wants to exit the company or maybe they want to reduce their position in the company, So, If the Big investors are selling the shares then someone has to buy it, So they will sell the shares in the stock market where public buy the shares, And investors book their profit by selling the shares.
And another reason why the company wants an IPO is maybe the has debt or maybe they want money for infrastructure or to buy machinery.
The company has its own net worth (Building, infrastructure, money invested by the owners) but the additional money which the company got from investors and the public, increases its net worth, and that additional net worth we can call it floating market capital. That floating market capital varies according to the share price, if the share price goes up then the floating market cap. also, go up, and when the share price goes down floating market cap. also goes down.
And once the company is listed and the company is old in the stock market and if it still requires the fund or it wants to raise the fund then it will bring the FPO(follow-on public offering) and raise the fund.
