What are the financial pros and cons for a company to go public? What hurdles rates a capital project would not pass; the debt versus no debt option and associated risk and impact to financial statements. What key financial metrics would senior management want to have? If metrics included payback period, net present value, internal rate of return, and modified internal rate of return how does senior management use these to make strategic decisions? Can you provide reference sites for further research......
IPO is an Initial Public offer to an investor, which mean it is the first issue of equities by the company to the general public at large. Among the most popular reasons a company might choose to go public are to: raise capital to expand its business, finance acquisitions, pay debt and have greater and easier access to capital in the future. Thus financing issue is how much to raise the funds from the equity offer. What should be the optimal capital structure in order to minimize the cost of capital.
Advantages of raising shares
Permanent Capital: It need not be paid back
Borrowing Base: It can be used to trade on equity
Dividend Payment Discretion: The payment of dividend is in the hands of management
To raise capital to expand its business
Have greater and easier access to capital in the future
Cost: It is more costly than debt
Earnings Dilution: It involves reduction in EPS.
Ownership Dilution: It involve sharing of ownership
Flotation cost: It involve flotation cost
Reporting and Fiduciary Responsibilities
Public companies must continuously file reports with the SEC and the exchange they list on. They must comply with certain state securities laws ("blue sky"), NASD and exchange guidelines.
If your company registers a class of securities under the Exchange Act, it must file the same annual, periodic, and ...
The financial pros and cons for a company to go public are given. The hurdles which rate a capital project would not pass the debt versus no debt option and associated risk and impact to financial statements are discussed.