What is an IPO?

IPO stands for the Initial Public Offering, when a private company offers it’s shares for public to the first time. It is company’s first sell of stock to the public or you can say it is the process of going public through an offering of securities by a corporation to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO.

Companies are of two broad categories: private and public.
A privately held company has fewer shareholders and its owners don’t have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of jurisdiction. Most of the small businesses are privately held and most of the large companies are public. There are many examples of large companies which are not public like IKEA, Domino’s Pizza and Hallmark Cards are all privately held.

An IPO is the 1st sale of a joint venture shares to the public. After taking out an IPO a private company becomes public company.

This is done with the help of a stockbroker firm(sometimes by several banks) which handles the distribution of shares to the public.If one has a private business and own all its shares, then he can take some of these shares and sell them to the general public to raise money.

Reasons behind offering an IPO:

The primary reason to offering an IPO is that companies plan to use the money gathered from IPO to further expand their business or
to increase their business operations. It is pretty tough to grow your company with just your own money or depend on debt. This is when companies think of taking out an IPO and raise money for expansion.

Taking out an IPO is the right time to cashing the success of a company and hyping the excess money to grow your company.

Why IPO’s are so popular:

IPO’s are so popular just because they are comprehended to make easy money for short term as well as long term investors.

Suppose a company decides to take out an IPO, and fixes the number of shares and price, at which the offer will be made to the public. Then investors starts applying for shares of this particular company, and normally most of the IPO’s of famous company’s receives more number of applications  than the total. People are keen on getting shares because the price at which the IPO is offered is commonly perceived to be at a discount to the fair value and when this IPO is listed, stock zooms up on the day of listing and a lot of investors made money by selling on the same day itself and if it was beneficial for long term also.

Other reasons are:

• Because of the increased scrutiny, public companies can usually get better rates when they issue debt.
• As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.
• Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.

Risk on today’s scenario:

Till a few years back IPO’s were the surest way to earn money because company’s offer their shares at a discount to the public in an IPO and it was sure to jump on the very first day of listing it’s stock. But it is rare now a days to find an IPO with discounted rate, company’s are offering their shares at a decent price and it is just like a wild goose chase for the normal public to buy shares of an IPO.

I am giving you an example of India’s one of the biggest IPO ever, Mumbai-based Reliance Power who raised $3 billion in January 2008 by initial public offering.The 228 million shares Reliance Power offered on January 15 sold in less than a minute. The shares sold represented a 10% stake in the company, which aims to provide electricity to power the country’s fast growth but which so far doesn’t have a single operating power plant till now.

Remember: an IPO is just selling stock. It’s all about the sales job. If you can convince people to buy stock in your company, you can raise a lot of money.So in my opinion IPO’s are one more another option for making or loosing money in share market.

Related posts:

1. Oil India IPO and Risk Oil India will come out with an initial public offering...
2. World’s Top 10 Business and Finance Magazines Business magazines merely not indicates the profit or loss of...

Related posts brought to you by Yet Another Related Posts Plugin.

GDP is nation’s broadest quantitative measurement which is done regarding  countries economic analysis. Soon after releasing the GDP growth data at 6.1 per cent many news channel has started discussion on this topic. Some of my friend asked me, What exactly the GDP mean? What role it plays in a country’s economy and how is it calculated? So….

What exactly the GDP mean?

Gross Domestic Product(GDP), sometimes known as Gross Domestic Income(GDI) is a basic measure of a country’s economic performance and is the market value of all final goods and services made within the borders of a nation in a year. GDP shows the total market value of all final goods and services produced in a country in a given year which is equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.

The GDP report also includes inflation data many times but sometime inflation is calculated separately. GDP report is released quarterly and compared to previous quarter of the same quarter in the previous fiscal year.

What role it plays in country’s economy?

The gross domestic product (GDP) is one the primary indicator which is used to monitor the health of a country’s economy. It represents the total value of all goods and services produced over a specific time period, one can think it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last fiscal year.

As one can imagine how economic production and growth which represents GDP can make impact on everyone bounded by that particular economy. A poor GDP data clearly shows the country’s unemployment, lower profit for companies which in turns means lower stock prices. One thing is clear either GDP ups or downs it directly affects the share market.

By this data economist calculate whether the economy is in recession. Investors are badly affected by negative GDP growth. So simply, GDP growth shows the economic growth or that country.

How it is calculated?

Measuring GDP could be tough task that’s why this is the job for the economist only.But a basic idea may be the calculation of the earning of everyone or the calculation of the total expenditure of everyone in a particular time period either quarterly or yearly.

The most common approach to measuring and quantifying GDP is the expenditure method:

GDP = private consumption(or consumer expenditure) + gross investment + government expenditure + (gross exports ?gross imports), or,
GDP = C + I + G + (X ? M).

If one has to compare GDP growth between 2007 vs 2008 then one can use:

One can calculate same for quarterly.

Sources: http://www.wikipedia.org/, http://timesofindia.indiatimes.com/,http://investopedia.com/

Related posts:

1. India’s GDP grows by 6.1 per cent in Q1 Despite of global financial slowdown, India puts an increase in...
2. Harley Davidson In India The most spectacular bike is finally announced its journey...
3. Indian Politics – A Rising Cry An Indian was asked to make two choices  jump in...

Related posts brought to you by Yet Another Related Posts Plugin.