ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER

An initial public offering, or IPO, is the offering of shares in a company to the general public for the first time.

IPOs may be made by start-up companies or companies that have been in business for a long time and by companies owned by private persons, other companies and governments.

Companies ‘go public’ for several reasons: to raise capital to reduce or pay off debt, to fund growth initiatives, to raise public profile, to allow existing shareholders to convert their holdings of stock to cash and to broaden their ownership.

A successful IPO is generally followed by the listing of the shares of the company on the stock exchange if the company satisfies the conditions for listing, an action which facilitates the trading of the shares on the secondary market, thereby providing liquidity for them, as shareholders are able to sell any portion of their holdings to other interested parties.

Listing also provides a means for determining the market value of the shares and the market capitalisation of the company.

Listing on the stock exchange raises the public profile of the company as it trades on the market and makes the required public disclosures of its financial performance and other material information. Poor financial performance and failure to make the required disclosures on time as well as failure to abide by the rules of the stock exchange can do serious harm to listed companies.

Although investors stand to benefit from receiving dividends and seeing the price of their stock appreciate, there is no guarantee that the company will make a profit or that the price of the stock will appreciate. How well the company does rests heavily on the ability of management to steer it effectively in whatever environment it has to operate.

A major initial step in an IPO is the preparation and distribution of the prospectus, also called the offering document. From it, prospective investors should derive enough information to make an informed decision on the merits of the invitation to subscribe for shares in the company. It makes sense to study and analyse it thoroughly and carefully.

The prospective investor who is not sufficiently competent to make a decision should seek independent advice from a competent financial company or professional.

http://jamaica-gleaner.com/article/business/20190421/oran-hall-anatomy-ipo#.XL8NwibihZ0.email